Australian property overseas investment - types of property investors in Australian real estate - are you a FRUIT or NUT property investor ?
For the past 25 years traveling to Asia’s capital cities, I have had come into contact with various types of entrepreneurial, intelligent investors, ranging from owners of car dealerships and factories, video producers, fund managers, and the like, it has become apparent to me that they all have a character trait in common. By Scott O. Talbot
My first example of a investor I like to call the Fruit Shop real estate investor. Bill, an old investor friend of mine, started out with a fruit shop in small time suburbia. Through hard work he managed to build his empire in to a large chain of distributors of produce, and now supplies a range of hotels and restaurants with his quality food items. He is undoubtedly an expert and master of his chosen trade, a fact undeniably stated by his success and wealth in his business environment. Bill is an example of this Fruit Shop Investor.
It was approximately 1998 when I first advised Bill on an Australian property investment. Bill boasted of his past glories dabbling in the real estate and shares market. His method was to buy good property, make any needed improvements, and then turn it over and resell it. With my advice Bill purchased a two-bedroom apartment in Carlton, initially to be used by his child while studying at Melbourne university.
When discussing his Australian real estate requirements, it became apparent that his property investment ethos was the same as his attitude towards buying and selling fresh produce. He would buy the freshest, ripest, most high quality foodstuffs, place it on the display shelf for all customers to see, and then he was obliged by the inherent nature of fresh food to sell it before it could rot before his eyes. So this mentality that had brought him great prosperity in the fresh produce industry was unknowingly applied to his behaviour towards his property investment strategy.
It took some convincing before he grasped that real estate would not rot on the shelves. The right property, bought at a good price, would increase in capital growth, unlike a three-day old banana on a 40 degree day.
Approximately three years after Bill’s initial acquisition when one of his children had finished at Melbourne University, I called to inform him of capital growth on his property, in the region of AU$200,000. Naturally Bill was delighted with this good news. So much so that he immediately instructed me to sell the apartment and cash in on the windfall!
This was a typical reaction from a Fruit real estate Investor. Said Bill: “That’s great. Get me the money. I want to buy more property, buy a sports car, go on holiday...” or whatever his whim was at that time.
What he didn’t realise was: He was exiting the property market place, therefore incurring some capital taxes on the profits, and more importantly, Forgoing any future capital growth on the property. By selling prematurely he was forfeiting a $100,000 in capital growth over the following 2-3 years.
This explains the Fruit Shop property investor. They often make a healthy short-term gain on their real estate investment, but they fail to reap the full financial benefits of holding on to and protecting their property assets. They operate through buying and selling real estate, making the quick buck wherever they can, moving on. So while they make a decent profit as they go along, they own nothing because they constantly speculate and sell.
The other kind of Australian real estate moguls, I call Squirrel Investors. A squirrel carefully gathers as many nuts as it can and stashes them away. It hoards. Most Australians are encouraged to see their long term wealth creation in this way. The goal is to accumulate real estate wealth rather than trade wealth.
In contrast to Bill is another client from Singapore. Known to me as Lin, this friend’s father is an excellent example of a Squirrel Investor and the benefits of that investment mentality. Lin owns a prestigious property on Orchard Road in Singapore. His father originally bought the property 40 years ago, insisting that it would never be sold and so took legal measures to ensure it could not be sold by the family in the years to follow, even after his passing.
The property price was relatively little back then. Today it is worth in excess of $30million. The rental income covers the mortgage repayments and the ability to extract the increase in capital growth of the property has made everyone in the family millionaires. All this from one single property. A great example of the rewards to a Squirrel Investor. The prudent owner could have sold in the 90’s and made a huge profit. Rather he held firm and steadfast to retain the wealth, and now has the ability to call up his bank and in no uncertain terms state the property valuation at $30million, the loan facility at $5million, the rental returns are positively geared and servicing the loan, and request upwards of 60% on the equity of the property.
The Squirrel Investor has been doing this every 2 or 3 years for the last three decades, engineering a renewable income through the accumulation wealth strategy of buying and holding on to real estate assets.
UCHK Consulting outlines a clear path for existing and potential property investors to also learn about how to be a clever “Squirrel Investor”, thus empowering them to achieve these phenomenal returns on their investment. The wealth creation strategy is very simple, it is buying property and retaining it by never selling, only in exceptional circumstances, thus holding on to the very mechanism that is generating the wealth, namely, the property.
