If you’re a new property investor, it is crucial to have the right strategy, risk profile and insights on migration, according to Domenic Nesci.
Dom is an entrepreneur, investor and the author of You Won’t F*ck It Up: Buying property is easier than you think.
On a recent episode of Property Hub’s Get Invested podcast with KnowHow’s Bushy Martin, Dom unpacked the process of establishing a risk profile, thinking like a local and using migration trends to identify upcoming opportunities.
Finding the right strategy based on risk
Dom said the key factor to determining the right strategy is establishing your pain tolerance.
“There are lots of different strategies in real estate and a lot of different opinions, and it comes down to how much pain you want to undertake as an investor. And pain comes from a few factors,” he said.
“Firstly, pain is money – how much money you have to spend. Spending money is inherently painful. So the deposit part of it, and then when you do renovations, that’s additional pain. Time is also painful – the time that you need to spend on the investment. Experience – how much experience we need, learning new things, getting your hands dirty, engaging with people, that’s all painful stuff.”
Weighing up the risks is equally important.
“How many variables involved in this investment are working correctly? If there’s 100 different things you need to get right, that’s another painful thing,” Dom said.
“So the more that the investment takes from you, the more painful that investment is. If it requires you to spend 20 hours a week learning a new craft, engaging different subcontractors, you know, it’s quite a complex funding structure. The more variables that are involved, the harder and more painful it is. And that’s typically because there’s more profit to unlock in that investment.
“Now, if you say, ‘you know what? I don’t want to put that much effort into this investment, I love spending time with my kids and I am taxed’, then you should probably go for something that’s a bit more passive. This is because even a passive investment requires money, time, and attention. Nothing is truly passive because it’s a tangible asset. When buying a property, things break, things happen all the time. So nothing is truly passive.
“So I think you have a good hard look at yourself and say, ‘how ambitious am I? How much money do I want to make? How quickly and how much pain am I willing to undertake?’ Because once you jump, the harder things get. You’re going to have some sleepless nights, and the more of those compounds, the more has you start losing and the more issues start popping up.”
Thinking like a local
Embedding yourself into a suburb and thinking like a local will reveal important insights that data analysts can’t necessarily present.
“The thing about property is you can be very high-minded about it all and you can be a desktop analyst. I talk to CoreLogic data analysts all the time and I talk to different economists and they’ll tell you what’s happening in Australia. But sitting too high up, you kind of lose perspective,” Dom said.
“And real estate is in the dirt, it’s on the ground. It’s very local. It’s personal. It’s about, how far do I walk to the coffee shop? What’s that coffee shop like? And knowing that, between 3pm and 5pm, I’ve got the school traffic coming through and it’s a nightmare living here.
“So thinking like a local brings you back down to earth to understand that, in this market, people hate double storey houses, so that will impact your price. So thinking like a local is about getting in touch with the investment, getting in touch with the local area, understanding what people actually care about within that specific suburb, and that will then determine why one property is going to be sitting on the market for 90 days and not selling, versus why this one’s moving a lot quicker than you expected. Because what people demand is different from suburb to suburb, city to city.
“Being local will also tell you a lot about what street is going to get a premium price versus another street. So to understand that stuff, you won’t get to know it unless you go and walk the streets, talk to the local population, chat to the cab driver, chat to the local barista. So thinking like a local is a way to get your feet on the ground and understand why this market functions the way that it does. And that’s not going to show on a computer.”
Using migration patterns to find opportunities
Dom discussed the ‘golden opportunity’ the property market in Melbourne presents, especially for first-time investors who are time poor and on good income.
“Australia is due to receive about 700,000 migrants over the next two financial years. No one really knows, but that’s what they’re currently budgeting for. And Sydney and Melbourne receive the vast majority of these migrants. So you simply follow where migrants are going to be moving to. And you can dive in and see where people are coming from, whether it’s Latin America, England, New Zealand, or wherever, and you can typically see where people will want to go because people like to live around other people that are like themselves,” he said.
“When Italians migrated to the country, they went to Carlton, they went to Leichhardt, they went to Five Dock. They wanted to be around people that are like them, speak their language and hang salami from their kitchens, you know? So same thing happens now. We’ve got a lot of people coming into the country and you can see where they want to move to. And a lot of Melbourne is, I think, one of the most affordable cities for effectively a great city. It’s almost at the stage of New York and London – it hasn’t quite got the population yet, but that’s its trajectory.
“So you can go buy an investment there for $600,000 – $650,000, rent it out for about 4% – in some markets the rental growth is going to continue to go, we’ve seen a 25% growth in some suburbs around Melbourne – so for me it’s a no brainer. Go buy something that’s off the plan, something that’s new, set and forget, claim you depreciation. Rental growth is coming, price growth is coming because of migration. Now this is not financial advice, but I think Melbourne’s a fantastic market to be buying property.”