Episode 78: Property Strategies For Building Wealth
On today’s episode,
In this session I am with property expert, Nhan Nguyen of Advanced Property Services and we are going to talk about how you can get to the next level of your renovating journey through property.
Nhan will share with us his top strategies combined with his philosophy on how to confidently build your property portfolio to increase the profit potential of your projects
Listen to Episode 78: Property Strategies For Building Wealth
Podcast: Download (Duration: 29:51 — 29.47 MB)
- [00:01:36] "Rich Dad, Poor Dad"
- [00:03:27] Investing in properties at the age of 21
- [00:05:25] Learning from a crazy investment experience
- [00:08:45] Sustaining clients’ growth
- [00:09:50] 3 strategies to build wealth
- [00:11:22] Buy and hold or buy and sell
- [00:12:43] Buying under market value
- [00:13:05] The 4 D’s
- [00:15:02] Joint ventures
- [00:18:25] Exit strategy
- [00:21:26] Profit margins
- [00:23:34] Mentoring
Safe Deals In Turbulent Times
If you've been wondering what is the best way to invest in crazy times like these…
…then you need to check out this FREE WEBINAR hosted by my dear friend (and property millionaire,) Nhan Nguyen.
Hello, renovators. In today's episode, I have a special guest in Nhan Nguyen. Nhan is a developer and an educator and the reason I brought him in is because development is probably the next step from renovating.
Some of the projects we do involve some subdivision, like adding a land component. But at some point in time, most renovations graduate on to the next level, which is development. And the reason being, it's not quite so hands on that you're not having to be on the project every day and it has a higher profit margin. So you're looking at 20% as opposed to most of our feasibility, we base on 10%.
And so in today's episode, I am going to be delving into some of the distinctions in his program and how basically they operate in terms of making a profit from development. And, of course, renovating does feature in the development story. So the skills that you have now carry over very well into the next stage.
And before we get into this episode, I need to remind you that the information in this podcast is general in nature and opinion only. It should not be taken as personal advice. There are significant risks with buying and renovating property and you should maximise your profit potential and minimise your risk by seeking independent advice that relates to your personal circumstances through your own financial planner, accountant and any other professionals that you are working with. The examples in this podcast are for illustrative purposes only. So enjoy!
Bernadette: Hello! Today, I've got Nhan Nguyen of Advanced Property Strategies and we're going to be talking about development.
The reason that we are having this conversation is because I believe that most renovators should be thinking about evolving to development at some point in time and the main reason for that is that the profit margins are generally higher. And, of course, with higher profit margins come higher risks. And so today we are going to be talking about an expert in the field. Like me, he's made quite a lot of mistakes and that's where the little learnings come from. So welcome, Nhan!
Nhan Nguyen: Hello, Bernadette! Thank you for having me today.
Bernadette: Yes, thanks for being here. I think that these little exchanges of expertise are really gold for our audience. And so let's get into it. So do you want to just give me a rough sort of outline of how you got to be where you are today?
Nhan Nguyen: Yeah, for sure. So firstly, thanks for being with me today and enjoying this beautiful sunshine. We're in great weather at the moment, it's beautiful.
So now I'm really loving the property game. When I started, I was in my 20s. I actually picked up the book “Rich Dad, Poor Dad” when I was 19. Also, I was going to university and I was always reading personal development books and stumbled on Robert Kiyosaki. And a few months later I realized my friends were into it, at the board game, we started going to seminars. And it was a really interesting path that I started because I had no intention. And I was one of those kids who was annoyed when you played Monopoly as a kid, I'd always lose and I just didn't understand the game. So I thought, "You know what? Business isn't for me. I'm not really into this". So having said that, it sparked a really good interest in me when I was 19, 20, 21 going to seminars about anything and everything, whether it's business, property issues, foreign exchange, anything. And I really started to look at different ways of making money.
After a few mistakes here and there, I figured out that property was something I really enjoyed. It wasn't necessarily that I was good at it, it's something I enjoyed and I loved the negotiation side of things. By the time I was 21, I'd bought 3 properties and I just threw myself into it. I was lucky to even finish university. I'd started failing subjects when I was out there looking at houses with some of my mentors and colleagues.
So, yeah, it started off as an early journey. I made a lot of mistakes early on like you mentioned and progressed from there. Doing some buy and reno holds some buy, reno sells. And then over the years, growing, doing strata, titling townhouses, renovating townhouses, building houses. That was in about 2005/2007 and done a whole different foray of different types of deals but mainly residential. I'm starting to do some commercial stuff now with the childcare center but mainly residential, land, subdivisions, townhouses, those kinds of things.
Bernadette: Wow. To be honest with you, a couple of things I wanted to say there, I could not get past “Rich Dad, Poor Dad”. I know it had some great principles in it but I could not get past the fact that his premise was that he measured the value of the person by their wealth building strategies and I just couldn't. A lot of people talk about that book and it's just - but anyhow, that's fine. And I didn't know that you started out renovating?
Nhan Nguyen: Well, I think that's where most people start, isn't it? So I bought a house, it was through a motivated seller. I think it was worth $65K. I paid $55K for it. The tenants were renting, I think paid $135 a week and it was positive cash flow. So based on those numbers, the crazy thing I did though was to get the first home owners grant. I moved in with the tenants, I don't know if you know that story.
Bernadette: Why does that not surprise me?
Nhan Nguyen: You know me well enough, see some of the crazy things I do. Yes, I got my rent reduced, I think it was $100 a week and I moved into one of the rooms. I was there once a while; once a week, twice a week to get the first home owners grant and it was pretty, pretty crazy. The tenant's girlfriend was 21 and he was 65. I was 21 at the time and I was just not aware of social graces. I was just focused on I've got a house to pay me rent, supposedly cash to get my first home owners grant. I mean, great life is good. So looking back on it now, I'm sure we could share stories of some of the crazy things we've done.
Bernadette: I don't think I can match that one.
Nhan Nguyen: And I think that that was the first one I ended up buying for $55K, selling it for $65K but with all the costs, the tenants, those tenants moved out and some other tenants moved in. I tried to be too tricky. I think that's one of my challenges is that I've had to teach my clients just to keep it really simple. I did some 60 renovated commerce, vendor finance, option strategy with the buyers or the tenants with potential rent to buy. And they just walked all over me because I was young, 21 and believed what they said. They're on Centrelink getting $1K a week, six kids. And they trashed my property and I sold that property with $65K and made $2K profit but a lot of scars and a lot of emotional upset and stress as a 21 year old because they weren't paying rent and I couldn't kick them out either.
Bernadette: Yeah. They're the best learning aren't they? You don't make that mistake twice. So how did you get to be teaching? So what was the motivation for going this way?
Nhan Nguyen: Yeah, for sure, for sure. So coming back to Kiyosaki, and I'm trying to figure out which chapter you're talking about that you didn't like. And then that's okay, maybe I was young and vulnerable and took it too literally. Maybe when you read it, it was a little bit different but we're with Kiyosaki. He did seminars in 1999 and 2000-2001 at the convention center here in Brisbane. And I was really inspired by his message and how he was able to inspire people to just essentially lift their financial independence and not depend on the government. I think that's probably the message.
Some of the things he said were a bit out there, a bit abrasive. I thought, "Okay, this guy's pretty arrogant" but you know what? I don't have to be that way. I'll just take my own story to it. Essentially, with a Christian background I do love sharing a message when something works. I love helping people as well. In property, there's a lot of ways that you can make mistakes and a lot of people do make mistakes and I've made a lot of mistakes myself. And I've known that if people can avoid those mistakes that I've made, for example, I did a deal where I borrowed money and it was just really expensive with 4% a month, which was 48% per annum, right? So the interest rates these days are sub 4%, let alone 4% a month, 48% annum.
And I've just done some crazy things like the first one was moving in with the tenants. As a younger investor, I didn't know where the boundaries were and had to find out myself. And as people get into the game, they want to try some things and they push the boundaries. And I feel my job and responsibility, if they're willing to listen to me, is to show them what the boundaries could be so that they sustain their growth.
I don't try to limit clients’ growth. I find some clients feel like I'm limiting them. It's like a teenager wanting to expand themselves and explore the world, and in the world of property, if you grow too fast, you can expose yourself and lose a lot of money and go broke and run out of money very, very quickly if you don't do it in a sustainable way.
Bernadette: Exactly, yeah. I guess what I'd like to ask you is what sort of profit margin does. Well, let's talk about the strategies. What would be your, if someone came to you and said, "I want to build my wealth reasonably quickly?” What sort of strategies would you be suggesting that they take on?
Nhan Nguyen: Yeah, very good. So it's interesting, though, that wherever people are I generally do suggest a handful things. Firstly, they learn how to renovate. And I know this wasn't a loaded question. These are some of the things that I get my coaches to talk to my clients about. I said there's 3 things that they need to focus on. Firstly, they need to know the basics of renovating. Full disclosure for the listeners is I don't like renovating, I prefer not to renovate. It's not a skill set of mine. I've got clients who are way better and more efficient than me at renovating but I say to them, look, renovating is an essential skill and you need to know how to do it. At the end of the day, I'm in the business of property to make money.
So I find things that I enjoy to make money, which is development but essentially renovation. Cosmetic renovation is where we essentially could suggest people to start. The second skill that we suggest people do is learn how to buy right. So buying under market value, learning how to negotiate with vendors, learning how to negotiate with agents and get the best deal possible. And the third thing we suggest people do is focus on multiple sources of income. And that could be a free block of land subdividing the back block off, building a granny flat at the back, building duplexes at the back of an existing house, or renting out your rooms one by one to get multiple tenants. So I think in summaries: 1) the cosmetic reno. 2) the buying right skill and 3) the multiple sources of income.
Bernadette: And so are you generally a buy and hold strategy or do you buy and sell as well?
Nhan Nguyen: Yeah, very good. I think that that's one of the biggest misconceptions in property when people associate in seminars, especially buy and hold with Warren Buffett. But I do both, I believe in development. Buy and hold is healthy and buy and sell is healthy. And I believe that if you are active in the property market and you do multiple transactions, you can do that. Some people, you know, they work PAYG (Pay As You Go) and they do that for 10, 20, 30 years. I don't have a lot of time or passion or commitment to doing a lot of transactions. Buy and hold, I do suggest, could be a good strategy for them but for me personally, and from what I suggest my clients buy some. So build some, sell some, keep one, build some, sell some, keep some. So that could be doing one into three, sell two, keep one or one into five, sell four, keep one because there's benefits of both and then there's negatives of both but you've just got to balance it, too. Just like the left leg and right leg to balance walking moving forward. Yeah, that's my suggestion there just in generalization.
Bernadette: And so let's get a bit of gold here now. So what are your tips for getting, buying under market value?
Nhan Nguyen: Yeah, sure. I think one of the things that is not very well understood or taught just in the general marketplace is looking for motivated sellers. And I think that's actually one of my strengths in our teachings is we talk about the 4 D's - divorce, deceased estate, debt and distance. Now, one of the deals that I bought off a deceased estate, they didn't necessarily give me at a massive discount but they were forced to sell it. Since those 4 siblings, 4 sisters of which 2 were executors and they were committed to sell and it was a property that was 1062 square meters on a corner. I was able to keep the existing house, do a cosmetic reno on that, and cut off 4 blocks of that. So each of the blocks is around about 180 square meters. And so that combined the motivated sellers strategy with the free block strategy that I talked about before. Because it had 2 street frontages and was able to maintain the existing house, we were just able to cut off 4 blocks on new zoning and I understood the zoning and ability to cut small blocks off it.
Bernadette: Okay. And that's a great strategy. That's something we did, not necessarily the 4 blocks off, but look for a renovation project that has some land because it just adds that extra strategy and extra profit potential.
Nhan Nguyen: Yeah, that's right. And not so much physical work, isn't it?
Bernadette: No. Well, really, no more physical work because most of it gets done by the civil contractor and the town planner and so on. Yeah. So just let's get to the 3 blocks of land. They're not completely free, though?
Nhan Nguyen: Oh no. It's available. And it's underutilized. So it could be a 1000 square meters, like you said, with the house at the front. I think you've done one where it was 800 square meters on a corner block.
Bernadette: Yeah. What about joint ventures? So joint ventures are the bane of my life because I really don't know what it is but what I have noticed is when people get into joint ventures, something happens and often in managing the relationships it's quite challenging. Have you found that?
Nhan Nguyen: For sure. Look, I'm glad for those listeners here. Bernadette and I've known each other for good enough while to be able to be completely blunt with each other. The joint ventures I do now in 2020, moving beyond in the last 5 years were completely different to what I did the previous 15 years in my property career, I'll be honest with you. So you are absolutely right. It's like a marriage that wasn't meant to be. Because what I mean by that is that oftentimes people have business backgrounds or business agendas that they don't even know exist until you get into business with them. And oftentimes or sometimes you get into business with friends, good friends. But when money's on the table, things change, right?
Bernadette: Exactly. I often say and I do like to call it out as it is, because I think there's a rosy view put out about joint ventures. And I think people need to go in with their eyes wide open. One of the things that I say to our people when they're doing them is, "This is like marriage. You are joined at the hip and you've got to expect at some point in time you're going to hate the other person's guts." It's just a fact of life. I always say the essential ingredient for a joint venture is bringing an open heart and really being grateful for the opportunity to do a project where you wouldn't be able to do one. And sometimes that means just sucking it up and getting on with the job.
Nhan Nguyen: Sure. Yeah.
Bernadette: So basically, did people find joint venture partners in your community? I'm asking you this because I know this is what my audience will be thinking.
Nhan Nguyen: Now, this is good. I'm glad we're not taking the rosy view of things that I suppose I want to clarify my angle on how I approach joint ventures within my programs as well and address that question that you mentioned as well. So firstly, when my clients do joint ventures, generally, the way that I teach them how to approach it is with two parts. Imagine a circle and you cut it in half. One half provides all the funds and the other half provides the time.
So with my clients, they come in with the opportunity of doing no money down where they are in charge and expected to do all the work physically for the project. So whether it's painting the walls or organizing a painter or organizing a build or organizing the concrete. So my point is that with my clients, when they're going with no money down J.V. They are expected to do all the time; negotiate with the agent, go to the auctions on negotiations, organize the paperwork. And the time partner, their job is to pay for everything. So essentially buy the property in their entity, let's say pay for the mortgage payments, put down the deposit, pay for the stamp duty, all the renovation costs, any overruns.
Essentially, each person has their role. So I think that's really important in joint ventures to stop the headaches or minimize headaches because there will be headaches and conflicts, especially when it comes time to sell when there's a disagreement on price. But yeah, firstly, you really get clear on roles and responsibilities. Your role is money. My role is time and anything that comes up, I'll sort it out. So that's the first thing.
Second thing is exit strategy. I think that's with joint ventures that people stuff up on is that they think that it's till death do us part, right? But with property it's not, it's a transaction. It's a transaction, just like if you and I do a seminar together, it's a transaction. We do a transaction or you go to McDonald's and you have a cheeseburger, you have a choice to do business again down the track or not. And then there needs to be an exit on it. It's not just a “until death do us part” and like you said, “joined at the hip”.
And that combined with my other philosophy, which is “get in, get out, get paid”. So it's about the velocity of that. The faster you get in and get out and get paid. Everybody can enjoy the fruits of their labor, enjoy the profits and have a glass of wine and choose whether to or not do another deal together.
Just to clarify that with the listeners here I'll be honest, I don't do deals like that anymore because I'm qualified enough to be able to get my own serviceability and I raise capital slightly differently to that basic model that I talked about there. But when I started it, for the first 10 years, that model worked a treat. Yes, you do have disagreements and there are challenges. Like I had a partner who just refused to sell his property. At the beginning, I was able to get in by a couple of million dollars with the property. He funded everything but he didn't want to sell because he had a big enough tax bill. He did not want to pay more tax. He was a doctor. And all I wanted was to get profit out of the equity, out of the deal, cash flow was good. But I wanted the extra $50K, $100K, $200K from the sales of the properties, not just the cash flow positive property income.
My point is, that's why I specifically talk about your exit strategy - having an exit in mind, the velocity of money, getting in, getting out, getting paid. And to answer your second question is yes, people do joint ventures within our community. If a deal is good enough and it ticks all the boxes. From time to time, people can bring me their deals and I'll introduce them to various potential money partners as well. It's up to them to either do business or make sure that meets everyone's needs. As you know, with a money partner, there are a lot of needs that sometimes can be met and sometimes they can't. And yeah, it's just a negotiation like anything else.
Bernadette: Great. Yeah. Thanks for clarifying that. Now, the next thing I want to ask you is so I don't know one of my mentors used to say to me, "Show me the money." You might even know who that is because I'm pretty sure you've done some dealings with him, too. So if someone came to you looking at your program, what sort of margins could they expect? Say, I've got someone coming and they want to do a deal and they've got some money to invest. They might need a joint venture partner but they want to get in and get out and get paid. What sort of profit margins do you work on?
Nhan Nguyen: Would you consider them a beginner developer?
Nhan Nguyen: And wanting to learn?
Bernadette: Definitely, yes.
Nhan Nguyen: So, look, when people want to do development for the first time, I generally suggest they aim at $100K or $150K, maybe even $200K mark to make it worthwhile. Why that is, is to get into a subdivision or a splitter your acquisition costs is at least $500-$600K. If you're not making at least $100-$150K on something like that based on a 18 to 22% profit margin, it's not really worthwhile. If you're doing a reno, some of my clients, they'll be happy with $50K or $80K. You said with the reno margins, it can be quite thin not because of the reno itself. It is the transactional cost. Stamp duty, agent's commission that's 5% in, 5% out. So 10% of costs are just transactional costs that you actually get no value from whatsoever, just paper.
And the same thing with development is that there's going to be applications, approvals, contributions from time to time. GST may be applicable on vacant land. If I was there, I might be looking for $100K-$150K mark as a starter and doing maybe one into two. Just because it's just a good way to cut your teeth. The more profitable deals, I'll be honest with you, are beyond that. We're talking one into five. One into seven is a really good, sweet spot when you get above one into seven. The structure of the development kind of changes you've got to start putting in roads and other infrastructure, which is cost prohibitive.
I'm doing a 30 lotter at the moment. I've got to put a big fat road in the middle of it and that's just expensive. I've got retaining walls. I've got left, right and center buyer retention. It's expensive and complicated. So when people are starting out, I don't try to stem in their enthusiasm. I just want to steer them to success on their first deal so they can organically grow onto a second and third deal with confidence and growing organically rather than plowing their way into a headache or potentially breaking even or worse yet, losing money.
Bernadette: Yeah. And you do, so going on from that, you do offer mentoring?
Nhan Nguyen: Yes, that's right. There are programs. We focus on the 3 fundamentals, like I mentioned before, buying under market value, free blocks of land as well as no money down. So I think with those 3 elements, if you're wanting to do development, you've got the essentials there. And a lot of it is learning on the job, so to speak, within our training and our programs and our bootcamps. We get people on the phones ringing agents, putting in offers, talking to property owners live, as well as talking to property investors. So it's very much interactive. And that's why my students get a lot of results, because we make them do it rather than just sit there and give them everything.
Bernadette: Yeah, that's good. So just on the no money down thing. I know you've just touched on that a bit. I forgot about that. Do you want to just elaborate a bit more? What's available because I know a lot of people that I work with would think that's a great skill to have. So basically, how do you structure those sorts of deals?
Nhan Nguyen: Yeah, for sure. So like I mentioned before, I think the critical things that we teach that make our clients are able to capital raise. Firstly, we give them a business plan, so we give them a template to use to present the deals. I think a big part of raising capital that a lot of beginner investors don't understand is there's a language that they need or a language of comfortability.
For example, return on investment or cash on cash return. Those are just words that are bandied around. But what does that mean? And if you have a 10% yield or 10% profit margin versus a 20% profit margin. Yes, it's obviously double the profit. But how does that relate to risk? So we give the client a template on how to raise capital. And it's the same template that I actually use in my capital raising. So I'm still capital raising in the last 12 months, I raised $1.2M in cash investors and I use the same template that I teach my clients to use. And it's a very step by step copy and paste. It's a simple template I've derived over the last 20 years of trial and error feedback from clients.
So that's one thing is the template. Second thing is we teach people what to say and what not to say to investors as well. It's about the approach. It's different to talking to a real estate agent looking for a good deal, right? It's the same thing. It's a process. And most of the time, this process is not taught at school. So the way I've learned it is just through making mistakes, getting feedback from investors and looking at what are their needs and what are their desires. At the same time, making sure your needs are met and your interests are protected as well.
Bernadette: Great. So we're just about ready to wrap up, is there anything that I haven't asked you that I should?
Nhan Nguyen: Oh, no. Look, I think oftentimes people are asking "Nhan, why do you do seminars in education when you're doing so well in property?" I find it's like playing multiple sports. It's just very enjoyable for me, like I said, with a Christian background, wanting to give back and reduce the amount of mistakes and pain that other people could experience through the learnings and the mistakes that I've made. I love doing property but I do find because the projects that I run, they're very efficient, I can't physically. Like I've got three or four projects on at the moment; thirty lot subdivision, a childcare center, and another house built with the subdivision there. And I can't throw any more than 10 or 20 hours a week into that because I'm not physically laying the tiles, not physically digging the trenches or managing it. I'm going out to investigate. I've got project managers on them as well. So from a time point of view, I've got a lot of time. And I love talking about property and helping people so that just balances out my needs for interaction with people at the same time doing deals.
Bernadette: Yeah, well, that's awesome. Well, thanks very much for sharing your expertise and giving us a bit of insight into what you offer. I think I must admit, when you and I first met, I thought we were choking cheese. But in terms of programs we are but I think deep down our values are very aligned.
And that's why I think that if any of my students were to say to me, "I want to do development, who should I learn from then?" Then I would feel very comfortable recommending you as a teacher.
Nhan Nguyen: Thank you.
Bernadette: Okay, well, thanks so much. And I hope everyone enjoyed that and see you next week.
Nhan Nguyen: Thanks, guys. Beautiful. Catch you later. If you want to check us out, it's at nhanproperty.com
Bernadette: We'll include that in the show notes.
Nhan Nguyen: Feel good. We had a lot of fun. Next time.
Bernadette: Yeah. Thank you.