Investor Stories

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After Property Observer published a<a href="/expert-insights/investing/30886-seven-signs-that-your-investment-property-is-being-used-as-a-drug-lab" target="_blank"> list of ways to check whether or not your tenant is turning your property into a drug den</a>, some industry members and property owners wrote in.
Smart Property Adviser’s Kevin Lee was among these readers, describing clients of his who had been taken for a ride after accidentally leasing their Adelaide investment property to drug dealers.
They had felt let down by property managers in the past, and took it upon themselves to self-manage – finding a couple with great references.
Lee explains that it was “happy days” for the investors at first, the tenant paying their deposit and bond completely in cash. In fact, he said, they appeared to be “such perfect tenants” that the investors were tempted not to renew their landlord’s insurance policy.
The tenants paid their rent on time and in cash. They also installed a new, powered, remote-controlled double car garage roller door at their own expense of $2,200, after the investors’ approval.
“The owners occasionally drove past the property, and it always appeared 'lived in', and when they conducted a routine inspection in early November 2013 nothing seemed suspicious,” explains Lee.
Fast forward six weeks, and the Adelaide police raided the properties, arrested the tenants, and revealed that the property was a hydroponic drug farm. The tenants had used false names, identification, referees and references, and resulted in more than 100 man hours worth of effort from the investors to resolve the problem, deal with police and the insurance company.
Despite this, they remain $2,000 out of pocket, Lee explains. Their landlord’s insurance policy covered them for $12,000 in costs to clean and re-wire the property and compensate for loss of rent.
Kevin Lee recommends the following:
<ul>
<li>Always ask for driver’s licenses, passports and bank statements to prove income and employment. 
</li>
<li>Do not accept cash payments – ask for payments via internet banking, such as BPAY or DEFT. 
</li>
<li>Have landlord’s insurance. 
</li>
<li>Keep a professional relationship with your tenants. 
</li>
<li>Consider digging around for a better property manager.</li>
</ul>
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Investor stories: My house was turned into a hydroponic drug farm

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GUEST OBSERVATION
I have worked in the property investment industry for a long time and have learned something new nearly every day. Some of the most important lessons I have learned involve the simplest things like requesting a title search. 
A title search may seem like a mundane or irreverent task to you now, but once you read the three cases below, you will understand why a title search is so important.
A title search can sometimes reveal unexpected surprises and not the good kind.
Title Search Case #1 – That’s not our home?
Bob and Mary were applying for a business loan and they were using the equity in their home to fund the purchase of this new business.
About one week into the loan application the bank called to give them the “bad news”. The land they owned did not provide enough value to support the loan application. In fact, the bank asked Bob and Mary, “We thought you told us you owned a home, not a block of land.”
After much confusion it was discovered that the Titles Office had noted the incorrect lot and plan number on their title. At that point in time Bob and Mary technically owned a vacant block of land, two doors down the road! This took weeks for it to be proven incorrect and then rectified.
Title Search Case #2 - Mark who?
Jane and Mark were refinancing a unit in North Queensland, which they owned for many years and planned to use the equity to support their latest purchase. The increase on the property was approved, as was the loan for the new purchase. Everything was going to plan until the day of settlement. Their world suddenly became very stressful.
As settlement was about to happen, it was noted Mark’s middle name on the title of the property and on his birth certificate was not spelled the same. Yes, Mark’s driver’s licence and passport were the same as the name on the title.
The settlement was aborted. Jane and Mark had to pay default interest on the purchase for three weeks until Mark<ins cite="mailto:Lisa%20Sanders" datetime="2014-04-28T16:46"> </ins>could prove he was the rightful person on the title and on the purchase documents. Mark also had to rectify the spelling error on his birth certificate, which his mother knew about, but never thought it was enough to worry about. 
Title Search Case #3 – Nearly debt free... 
Jim and Jenny purchased their family home in 1984 and paid it off within 10 years. When they made the last payment they were very proud and promptly approached their bank for a copy of the title deed.  After speaking with the bank, Jim and Jenny changed their minds as the bank told them they would have to pay a fee to have the title deed released to them. The bank also suggested they would be the safest place for the title deed to be held.  
Many years later in 2004, Jim and Jenny agreed to act as guarantor for their son to purchase a small farm and they offered their home as additional security. Their son paid down the loan within a few years and then refinanced the farm so he could purchase more equipment and stock. 
One day, Jim and Jenny decided to request a copy of their title. They discovered there were still two registered mortgages against their property, which they believed was totally unencumbered.
Their are several valuable lessons you can learn here:
<ol>
<li>
Carefully check data entry Make sure your title search has been correctly registered – human error is possible, even in the titles office.  Check to see if your names are spelled correctly and are exactly the same on all identification documents, in particular on your birth certificate. Make sure you cross check your lot and plan number. You can do this through your local council and/or order a copy of the plan for your lot. 
</li>
<li>
The more you learn, the more you earn If you have paid off your home, make sure you learn about the potential investment opportunities that come with all your new equity.  Find out how you can generate wealth using your home. Remember, it is far wiser to have your money working for you and not the bank. If you seek further education and learn how banks leverage against mortgage backed securities, it makes it a lot easier to obtain and understand good professional financial advice. 
</li>
<li>
Always understand your risks When you sign up to be a guarantor for a loan, you are offering your assets as security for the debt on the loan. If the loan cannot be paid, the bank or lender has the right to go after your assets because you have agreed to be the guarantor for the loan. If the loan is increased, then the bank also has increased ownership over your assets because you are a guarantor of the loan. This can occur with or without your knowledge. For example, when John and Jenny agreed to go guarantor for their son they did not fully understand their risk with the second mortgage registered again with their home. Nor did they know this could be extended to future borrowings their son may commit to without their consent or knowledge.  They should have obtained more advice on the risks of offering a limited guarantee.
</li>
</ol>
In Summary 
<ul>
<li>Conduct regular title searches on all property you own.</li>
<li>Make sure all details are recorded correctly and as you believe they should be.</li>
<li>Make no hesitation regarding the release of a mortgage once you have repaid the loan. </li>
<li>The cost to have a mortgage released is minimal compared to the potential risk if you leave it registered without full knowledge of the lost opportunity and/or risk associated.<ins cite="mailto:Lisa%20Sanders" datetime="2014-04-29T11:53"></ins>
</li>
<li>Obtain a full understanding of the opportunity available to you if you have equity in your home. You must also understand the cost of lost opportunity if you are not making smart financial decisions.</li>
</ul>
If for some reason you cannot obtain a palpable copy of the title, it is not the end of the world. Thanks to the <a href="https://www.urban.com.au/expert-insights/finance/29617-what-is-torrens-title-property-investment-terms-explained&amp;sa=U&amp;ei=PB-EU_vzA8bWrQf51IFI&amp;ved=0CAgQFjAB&amp;client=internal-uds-cse&amp;usg=AFQjCNHuhR_YyFkRhpFSpE5HZBVnms8eMg" target="_blank">Torrens title register</a>, all titles are digitally stored. The Torrens title system, which transfers property ownership through title registration rather than the deed, was introduced in 1863.
Now that property titles are digitally stored, it eliminates the risk of you losing all your property if you lost the tangible copy of your title.  However, it’s always better to be safe than sorry so we strongly encourage you to keep your title in a safe deposit box at the bank or you can ask the bank to hold it for security.
Dianne Crichton is a property market advisor at <a href="https://yourfuturestrategy.com.au/" target="_blank">Your Future Strategy</a>. 
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Three case studies that show why you should always perform a title search

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As a mother of two beautiful boys, my focus is to teach my sons the value of setting themselves up for the future early.
I only really leant that I was totally responsible to support myself after reading the book Rich Dad, Poor Dad by Robert Kiyosaki when I was pregnant with my first son 13 years ago.
The book opened my eyes to lots of things, but my two main insights were; the more time we have to build our investments, the more money we should have when we are ready for retirement. And, that we need to educate ourselves financially and not just handover our money and trust others to invest it for us. We are responsible for building our own wealth.
So off I rushed to build our investment portfolio and along the way I also created a business developing property for others. I found that I loved my new business; it was flexible to accommodate my baby and I was doing something that I loved: Property.
As my son grew older and our second son was born, my investments started to really show the benefits of holding property over the long term. Rental returns slowly increased and capital growth created equity. Then I started to develop and add value to my regional investment which lead to my understanding of compounding equity creation through development.
I try to talk about property investing as much as possible with the kids, sometimes they come with me to the development sites and I try to explain in simple terms about basic economics. “We are building houses here...if you borrow money to build or invest you’ll get some help from the government to help you pay the loan costs.  You will get paid rent and this will be a source of income for you...” I tell my twelve year old who has starting to understand. We set up a term deposit for him that we call his ‘first property deposit’. Slowly I plan to build on his knowledge of economics and how he can make money by being entrepreneurial.
Kids are pretty smart with money so engage them and encourage it. I try not to say ‘we can’t afford it’ and rather ‘how can we afford it'? Let them come up with ideas to make money. To nurture the genius in your child is a great gift.
As Robert says “Don’t just protect your child from the future; prepare them for it”.
I don’t want my kids to have to deal with the tyranny of compounding bad debt as well as the compounding interest on that debt. We must educate our children and teach them the difference between bad and good debt. 
The world is full of teachers and they are not all in the classrooms. Our kids need to learn early how to make money, invest and manage their finances. Experience and making mistakes along the way is the best way to learn. As parents we can help our kids think differently to the way we did when we were young.
Happy Mother’s Day for Sunday to all the mums out there.
<a href="https://www.propertybloom.com.au/" target="_blank">www.propertybloom.com.au</a>
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We need to teach our kids the importance of investing wisely: A Mother’s Day message

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GUEST OBSERVATION
Al, my business partner, and I were recently out at one of the secondary schools talking to the students about the basics of investing and property as an investment option.
But I decided to start my property section a little different from usual and I think it really woke them up.
I wanted to provide them insight to the property world that most Australians never get.
Here’s how it went…
I started explaining to them that I had a friend named Leigh, who when growing up was mesmerised by Hollywood. He loved film making and a bit over 10 years ago wrote a movie script for a little film called Saw. When Leigh and his mate James landed in Los Angeles the first time they were swept off their feet by Hollywood executives and were promised the world. They rejected all offers to purchase their script and decided to hold onto the movie rights. They made Saw and have now gone on to make other films like Insidious, The Conjuring, and James currently directing the latest Fast and Furious film. So yes these boys made it big time.
Hollywood is called 'tinsel town' for a reason. There are lots of bright lights but these lights are only there to cover up the rotting core. Talking to Leigh over the years he explained to me that Hollywood is very similar to the way I describe one part of the property industry. The part I relate to Hollywood is what I call the property advisory or seminar circuit.
The thought of making it big time seems fantastic, but something in your gut just doesn’t feel right. This is how Leigh felt about Hollywood and this is how I felt about the property industry.
Wherever there is large amounts of money there will be sharks. So I told the kids I was going to do an exercise and if they participated they would see the advisory or seminar circuit for what it really was. They would hopefully then be able to remain safe as they ventured into the property investment world.
So Al and I split the room up in two. We put on some pumping music and started throwing $20 notes into the crowd. We worked the kids up to a frenzy getting them to yell ridiculous things back and forth at each other. They had an absolute ball and pocketed some quick cash in the process. Al and I joined in the yelling and ran around high fiving all the kids.
I then turned the music off and asked them to sit down. I asked them if any of them had been to a property seminar.
None raised their hands.
I told them that they all had now just been to a property seminar and went on to discuss that the majority of property seminars are design to follow on with charging you for overpriced education or over-inflated property purchases.
Here are some of the points we then discussed.
The dictionary defines a scammer as the following: "Swindler / Scammer: a person who swindles you by means of deception or fraud."
When it comes to buying property we are talking about large sums of money. We are not buying lollipops. Sadly this brings in the sharks.
Signs that the sharks are circling.
<ul>
<li>Pumping music aimed at getting you hyped up. Smart investors do not buy on emotion.</li>
<li>Visuals of money or luxury items.</li>
<li>The presenter positions themselves as a saint. They tell you about the charity that they support. Philanthropists do not promote the fact that they give their money away. If someone promotes the fact that they are a philanthropist this is a big tell-tale sign that they want to take more than they give.</li>
<li>Questions asked multiple times like ‘Are you ready to change? Are you ready to take action? Are you ready to make the sacrifice?’ If you hear this you’re about to be the sacrifice.</li>
<li>Act now, price reduction offers during or at the end of seminars.</li>
<li>No discussion on the risks of investing. This should be the centre of an education session. I always find it amusing that risk is either skimmed over or never discussed.</li>
<li>The promise of getting rich quick. Remember smart investors get rich slow.</li>
<li>Promises of above average returns.</li>
</ul>
I told the kids that they should always question and advisors motivation. To understand why someone is promoting a certain product or service, you need to firstly understand how they are paid. 
These were pretty smart kids so hopefully this lesson will keep them safe in the years to come. 
Cam McLellan is a successful property investor, businessman and the founder and CEO of <a href="https://openwealthcreation.com.au/" target="_blank">Open Wealth Creation</a>. 
Open Wealth Creation advise, coach and guide people through the property investment process including arranging finance and choosing property to finding tenants and portfolio management.
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cmclellan-94LEvYTinN

How to stay safe from the property sharks

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One of the joys of my job is listening to people's investment stories - how they've achieved what they have so far and where they are heading.
One of our female clients has six children, is an accountant and owns eleven investment properties after completing two property developments with Property Bloom. To state the obvious, she's time poor, I've written about Rachel in the past...
<a href="/expert-insights/buying/23122-friday-may-31-observer-jo-chivers">How does a mother of six come to accumulate eleven investment properties?</a>
Another client is a family man and fellow soccer coach, man does he loves his football! We met years ago as our sons played for the same club, but he didn't know what I did until he read an article in a property magazine that I'd written. Busy with work, soccer and family commitments and with no development experience, he asked me to manage a project for him. Then he embarked on a long-term holiday; we organised the builder to pre-invoice his drawdowns so we could manage the bank payments while he toured Europe.
Another lovely couple recently completed a three villa development with us, she works at a university and he's an engineer, both highly educated. They referred their daughter, a law (and soon to be medicine) graduate to us for her first property investment - a dual occupancy project. She was our youngest ever client. When we completed villas, the parents signed up for another project; they had little spare time and I think most importantly, we'd earned their trust.
We managed one development for a client who we are very proud to say served our country in the Australian Army in Afghanistan. She was there right through the duration of her development. I really cherished the updates we would get from this lady, when she had email access, and was amazed at some of the conditions she had to endure. No running water for days – how is a girl to wash her hair!  Needless to say, she had important things on her mind and could not have managed her own development from an active war zone. I've written about her story before too:
<a href="/expert-insights/investing/21339-friday-march-15-observer-jo-chivers">Don't let a war get in the way</a>
All our clients are different - they come from varying backgrounds, cultures and employment and we love working with such diverse clientele.  
But there is a common thread I have noticed.
All of our clients are highly driven and time poor.  They are conscious that there is a limited amount of time available in which to build their wealth.  They've told me, that to outsource the management of their property development to someone more experienced and capable was a no brainer. They openly admit that whilst passionate about property development, there is a knowledge gap and for them to come up to speed would take years.
To handover this responsibility to us lets our clients keep doing what they do well, earn a salary to support their financing and spend precious time with those they love.
<a href="https://www.propertybloom.com.au" target="_blank">www.propertybloom.com.au</a>
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Even the most time poor people can create a property success story

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I think the beginning of a new financial year brings much hope and optimism, a bit different perhaps to the start of a calendar year when we are usually still in holiday mode.  
Now is a good time to reflect on our investments and think about how we can continue to grow our property portfolios.
This week I've received a few depreciation reports that I'd ordered for clients, as we'd recently completed their property development projects. I love reviewing a project on completion. As part of our project management process, as a development nears completion we arrange rental appraisals, order market valuations and analyse the project. We check the builder's final payment and the credits or variations received during the build phase then we add the actual build cost to our Project Analysis.
I love watching my spreadsheet change as we add the actual results. We remove any contingency we had left in the project and see the real cost. The actual rents are included and we can see the real yield and when the valuations come back, we replace our estimated end values with the market valuations to see how much equity has been created. 
The final costs and the handover date is confirmed with our quantity surveyor so they can finalise the depreciation reports. In the last dual occupancy project there was  $20,340 in year one using the diminishing method. This combined with the rental return will almost always make a dual occupancy project cash flow positive for our clients as gross yields are around 6-7%.
Did you know that these items are also taken up in the depreciation schedule?
<ul>
<li>Preliminaries such as architect and engineering fees;</li>
<li>Contractors margin;</li>
<li>Authority fees; and</li>
<li>Consultants fees.  A project management fee can also be included here.</li>
</ul>
Once we determine our final project management fee, we ensure that it is also reported to the quantity surveyor to include in the depreciation schedule.
In this dual occupancy project, our client was pleased with the $107,782 of equity created in 11 months and the high depreciation benefits and decent rental yield....well who wouldn't, considering they have never even seen the land or completed villas and let us project manage all the work for them?
<a href="https://www.propertybloom.com.au" target="_blank">www.propertybloom.com.au</a>
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End of financial year is a good time to reflect on your investments

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Real estate runs through Michael Fox’s veins. The 47-year-old Melburnian started his career managing residential properties, working his way into commercial sales before landing the job of looking after the property assets of Toll Holdings. It was at Toll that Fox met his future business partner Paul Little, and the duo developed their first property together in 2009. Their development company Little Projects sold 800 apartments last year and generated approximately $300 million in sales.
My background spans 25 years in the real estate business. I started out in residential property management and went through to residential sales and then commercial sales and leasing.
I worked at some of Melbourne’s largest real estate firms like McGees and Knight Frank, before moving into the corporate real estate world, looking after the real estate needs of large companies like the Smorgon Group. After Smorgon, I went to Toll Holdings where I looked after all the property matters for Toll, which is the largest transport and logistics company in Australia. At the time, my business partner Paul Little was managing director at Toll.
Our company really started by accident. I came across a spot in Richmond that I thought I could do something with and I spoke to Paul about it. So it was a combination of my expertise and his bank account.
The first development was in Stawell Street in Richmond, where we sold 133 apartments off the plan. Our second site was the Bunnings development in Burwood.
From that point, Little Projects really flourished and we bought a number of other sites. At that stage we had another partner who ran the development side of things and we only did one project every few years.
We are now probably Melbourne’s largest property developer and we sold 800 apartments last year. We focus on inner-city development sites in prime locations. We developed 159 apartments on Fitzroy Street in St Kilda, 250 in Bay Street Port Melbourne, and 388 on Toorak Road in South Yarra. We’ve recently finished developing 411 apartments at the old Tip Top Bakery in East Brunswick and started work on 367 apartments at our latest project, Central South Yarra. From there, we’ve sold off a plan 15 months before completion.
The business has gone from doing one project every few years to one of the largest developers in town. We have 1500 units in planning right now.
Little Projects was one of the first property developers to also offer property management to clients and that sort of harks back to my property management days.  
My expertise in the development side of the business comes from my time at Smorgon and Toll, where I managed close to $1 billion of development over the 10 to 13 years I was there. My experience there was quite broad and varied.
We’ve achieved amazing success in the close to four years that I have been doing this full-time. We went from nowhere to being one of the biggest in town. We’re a small team but we really try to offer something different.
Our secret has always been buying in the right place and right location. We focus on developing locations in prime city-fringe locations, close to public transport. That’s the key to the whole thing: fantastic locations with better than average apartments.
Melburnians have learned to embrace apartment living. And they are not just living in smaller spaces, but embracing whole buildings and community living spaces.
We have always used a business plan. We have pretty good discipline in our business, which comes from our public company backgrounds and the rigours around public company life.
I tell people I think I’ve got the best team going around in Melbourne. Little Projects currently employs 25 professionals. The key is that it is not all about me. It’s also about the people we employ. We only employ the best.
Marketing is an absolutely critical part of the business. We’ve worked pretty hard at developing our brand as a quality developer and we completely committed to pushing our name hard. We’re only as good as what we deliver.
Our property management business is an important part of this. We lease apartments before we finish settling and building. None of our apartments go without a tenant for too long. It is all integrated.
Our next project at Lorimer Street in South Wharf will be something Melbourne hasn’t seen before: twin towers with community facilities, including swimming pools. It is loosely based on some developments overseas [but] it will be well and truly above what others have done.
We’re also looking at expanding interstate. We are watching those markets, although we’re cautious about the next steps. You never want to get too far ahead of yourselves.
I think the real estate market is still reasonably strong. In the earlier days, we had good demand from the first home buyer grants, and this was followed by self-managed super funds. At the moment there is a pretty good push from overseas investors in Melbourne.
This article first appeared on <a href="https://www.SmartCompany.com.au" target="_blank">SmartCompany.</a>
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How Michael Fox built one of Melbourne’s largest property developers

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I had learnt a little about suburb lifecycles recently  - how a suburb can change over time.
Generally speaking new areas usually attract young couples and families, but also some mature aged people like grandparents wanting to be close to their grandkids and who can help support and care. So it's important that new areas do have a mix of housing available. 
I've recently been researching a new location after finding a good dual occupancy development site there. 
In the past, I have put this suburb aside as the land was expensive and generally lot sizes smaller, however a large enough site came up and as I ran the figures on it, my heart beat increased!
This suburb was experiencing fast growth due to new land estates opening  and there was a fair amount of land to be released in the location. Because of this, the government had allocated money for community services, facilities and infrastructure.
The suburb is also very well located being only 20 minute drive into Newcastle CBD.  In the new estates, it was predominately large four or five bedroom family homes being built and even though the land was expensive reflecting the facilities of the master planned estate, after some research I could see the opportunity for good demand for smaller dwellings.
The area was popular with families building new homes and wanting to be close to good quality schools - there is a well regarded primary and high school within walking distance. Parents could work in Newcastle and be home early for the family.
The estate offers a bushland location with beautiful views over wetlands, quality sporting fields, a community centre and a new shopping village had popped up within five minutes with a shiny new Coles open and Aldi store under construction.
The M1 freeway access to Sydney is just a few minutes drive away. This estate was well placed location wise and also for future growth.
For me, building three bedroom villas in a location that is dominated by four or five bedroom houses makes a lot of sense. There would be several markets for these villas on completion; young people who can't yet afford to build the larger homes, separated people looking for smaller dwellings, single parents and empty nesters looking to downsize. I think if the location and facilities are good, a lower entry point for rent and sale prices - can be a good differentiation for your development.
Also sales of the larger, more expensive dwellings could impact positively on the values of smaller dwellings if there are no direct comparable sales.  There could be good demand from renters wanting all the benefits of the estate for a smaller outlay.
<a href="https://www.propertybloom.com.au" target="_blank">www.propertybloom.com.au</a>
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A good mix of dwelling size is important

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Larry Kestelman (pictured right), a property developer with more than 20 years experience, heads LK Property Group, among other real estate businesses.<img src="/images/2014/06/24/Larry-BW.jpg" alt="" style="float: right;">
Kestelman founded telecommunications company Dodo, which was sold to M2 Telecommunications Group for $203.9 million in 2013. He remains a major shareholder.
He is also director of Oxygen Ventures, which invests in and develops up-and-coming businesses.
Kestelman talked to Property Observer about the outlook for the Melbourne residential property market, an upcoming product launch and the way he runs his businesses.
What are your views on the outlook for the Melbourne property market?
The market is very good. We’re doing well with sales. We produce quality product and there’s demand for that.
We are reasonably bullish about the Melbourne property market.
We don’t concentrate on only one suburb. [Our properties] are selling well and getting interest from local and overseas buyers.
The overseas market is still strong. Australia is an attractive place to live, work and study.
Locally, we’re definitely in a good moment in time with low interest rates. We’ve got a lack of supply and there is a shortage of quality development sites. I look at what’s in the pipeline and it’s hard to find quality sites.
Tell me about your upcoming launch.
It’s a joint event between LK Property Group and Qantas Frequent Flyer on June 24. We first initiated our affiliation with Qantas in 2013.
We are the exclusive partner for Qantas for property in Melbourne and we develop a number of properties around town and market them to Frequent Flyer members.
About 600 members of the Frequent Flyers program have been invited to attend the invitation-only launch event in Melbourne’s Docklands.
I’ve been in property for 20 years and over the last four to five years there have been different gimmicks but the only true loyalty program that works is the Qantas Frequent Flyer program. It’s a way to reward clients and keep them coming back.
LK Property Group uses mainly in-house design, trade, marketing and sales staff. What is the advantage of this strategy?
To achieve a consistent result over a long period of time it’s hard to get different contractors to do the work: as their interest wanes, you get a different result. If you build the processes and people internally, you get a consistent result.
The property industry in the past has been used to using external people but I intend to be here still for a while. We intend to do the hard yards now to get consistent results in the long term.
We invest in all the people we work with, both inside and out of the business. A happy customer is one who will come back. We have a concierge service for all of our purchasers. We hold their hands through the entire process.
How do you choose the external business partners that you do work with?
First of all I have to meet the people and get comfortable with them. For that, history speaks a lot. I would want to talk to other clients they have, understand what experience they have and make sure they are of the right calibre. To me, company name is irrelevant.
You run other ventures. Tell me about them.
I’m a business person. I’m in the business of setting up businesses, processes and people to make businesses operate. That’s what I do. Property is the same thing.
The Big Pitch is [one current project through Oxygen Ventures that aims] to find the brightest people with the best ideas and then helping them succeed. We are hoping to attract the best of the best with the form of people and ideas and we can help them with funding and services they need.
In the [LK Group of companies] we have legal, financial, call centres, we have a complete incubator service to help [start-up businesses] grow quickly.
The Big Pitch received more than 400 responses. I encourage online retail and technology companies mainly. Those are my areas of expertise. I love businesses that use underutilised resources where we can match supply with demand.
How do you apply technology in your property businesses?
From a technology point of view, for property it’s more about the data and the way we market to customers. [Working with] Qantas is an example of working in a scientific way, analysing what kind of people will be interested in the properties and marketing to them.
Picture courtesy of Vincent Q/Flickr/<a href="https://creativecommons.org/licenses/by/2.0/" target="_blank">Creative Commons</a>.
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Q&A: Property developer Larry Kestelman on the outlook for the Melbourne property market

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The federal budget certainly sent shock waves through the economy, but according to the ANZ-Roy Morgan consumer confidence index it appears to be recovering.
Consumer confidence has improved a further 2.4% over the past week, bringing the total improvement in confidence to 6% over the past month.
Also helping investors feel comfortable is the fact ME Bank are still offering a three year fixed rate at 4.69%, which gives investors more confidence about the future.
Property investors have already begun to re-enter the property market, but these two events are only going to add to the momentum. They will begin to change their thinking from ‘if’ they should buy property to ‘what’ they should buy and will be torn between the logic of two radically different investment strategies.
One says it’s always best to buy property that’s positively geared. This means that holding costs like council rates, insurance, maintenance and interest on the loan are less than the rental income received.
The second argument says it’s better to buy property that’s negatively geared, meaning that holding costs are greater than the rental income received. You fund the shortfall from your own pocket, giving you a ‘negative income’ which you then claim as a tax deduction.
In reality, these arguments are doomed to go around in circles. There’s no one right or wrong answer that applies to every investor. Each purchasing strategy has its upside and downside; both of which should be considered before making a decision.
Let’s start by looking at positively geared property. Generally speaking, the high-buy in price of most properties in capital cities means that to buy a positively geared asset, you must purchase in a regional or rural area where prices are lower. This may leave you with a relatively modest mortgage, making it easier to enter the property market, and easier to fund the holding costs from rental income alone.
The downside, however, is that positively geared property may have a lower capital growth rate. Every property’s value is determined by the ratio of two components: the land and the building. Land appreciates, or grows in value; whilst buildings depreciate or fall in value.
In regional and rural areas, land values per square metre tend to be low because there’s plenty of land available compared with the level of buyer demand. This means the building accounts for most of the asset’s value. The building may lose value faster than the land can gain value—hampering long-term capital growth.
Let’s compare this with buying negatively geared property. When the buy-in price is high, the land value probably is. This is the upside of negative gearing; you’re more likely to have purchased in an area with a limited supply of land relative to buyer demand. The land component makes up a higher proportion of the property’s overall value, giving the asset strong capital growth potential.
On the downside, buying a negatively geared asset means that whilst your long-term risk may be lower, your short-term risk may be higher because you have to find a way to fund the difference between holding costs and rental income from your own pocket. This can create cash flow pressure, particularly if you incur an unexpected expense such as an interest rate rise or urgent repair.
In short, it’s a case of short-term gain and possible long-term pain (positively geared property) versus short-term pain for possible long-term gain (negatively geared property). To decide which is right for you, it’s important to assess your financial circumstances.
First, consider your level of disposable income. If you have spare cash to cover the difference between your holding costs and rental income, buying a negatively geared property may be appropriate. On the other hand, if your budget is tight, negative gearing may be too hard an ask, and a positively geared property may be a better way to go. The capital growth won’t be as strong, but at least you’ll be in the market.
Second, consider how long you’ll be earning a good income. To ride out market fluctuations and recoup purchasing costs, property should be viewed as a long-term investment; at least seven to 10 years. If you’re close to retirement and a substantial drop in income isn’t far away, adopting a negatively geared strategy may not be viable. In this case, you should consider investment options that don’t require you to contribute funds from your own pocket. By contrast, if you’re many years away from retirement, you may have enough income over the long-term to fund the shortfall from your wage or salary. 
Whichever gearing strategy you choose, go into it with your eyes open.
Mark Armstrong is a director of <a href="https://ratemyagent.com.au/" target="_blank">ratemyagent.com.au</a>, Australia’s number one real estate agent rating website.
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