Welcome to Compare Return. In this week’s video, we’re going to be bringing you the three biggest mistakes that expats make when purchasing an investment property and how you can avoid making those mistakes.
In this week’s interview we are super lucky to be having a guest who has absolutely dominated the investment property industry for many years now. It’s somebody who’s built an industry and a company from the ground up and someone who I’ve got a ton of respect for. That is Grant Reynolds from IP Global.
IP Global have sold more than three billion dollars worth of property, that’s more than 5500 units, and they’ve done it in more than 18 countries around the world. So, when he’s telling us about the mistakes that people have been making, he sure does know them, and he also knows how to make sure that you can get the best return for your money. It should be a good episode today, so stay tuned.
Ryan: Thank you so much for joining us today Grant. Welcome to Compare Return and thank you very much for your time.
Grant: Great to be with you Ryan and thanks for inviting me on today.
Ryan: I’ve been familiar with your business for quite a while. It’s a company and a structure that I really do admire so it’s fantastic to be getting you on board to educate us on some of the things that expats might be doing right or might be doing wrong when it comes to buying an investment property. Do you want to tell us a little bit of background about yourself?
Grant: We’ve known each other for quite some time Ryan but I’ll share with everyone tuning in. My background is I’ve been with IP Global since 2006 when the business was set up. I’ve seen us transact over three billion US dollars of property over many years from where I’m based in Hong Kong at the head office. We’ve got a hundred employees globally and we’ve got a very unique business model.
We do everything from the end-to-end process of buying unemotional property in city centres globally. The key USP of our business is we actually invest our own capital. So, it’s very unique from that perspective. We’re taking the risk and clients like that because we’re aligned with their interest. So, whatever they don’t buy by completion we have to buy ourselves and that’s very unique in the marketplace. Most property companies are purely marketing property, whereas we are actually committing our own capital and taking risk.
Ryan: I believe today you’re going to walk us through three of the biggest mistakes that expats make, and the first mistake is (as you touched on really quickly) being too emotional about their property purchases or not being able to take the emotion out of it. Do you want to go into a little bit of detail about what that means to you as somebody who runs an investment property company?
Grant: Exactly Ryan. Too often we see people focusing on the aesthetics and looking at all the picturesque side of a property investment when they should be looking at just the hard data, just like any other financial instrument. We’re very much focused here at IP Global on providing all the high-level data for the client to make an informed decision on buying a property. Such as, providing all the comparable data on the pricing, making sure that in the area we’re investing that there is not too much supply coming on – but tremendous amounts of demand. We’re looking at what’s going on in the population. Is there population growth? Is there regeneration going on? What’s the exit strategy? What’s the rental market like? What are the yields like? Can mortgaging get achieved? What’s the quality of the developer? There’s lots and lots of information that we’re going to provide for the client to make an unemotional and informed decision to make sure they get the very best investment.
Ryan: When you’re deciding on where to set up a property investment or where to start development, how do you go about that process? Do you just build anywhere and everywhere, or do you have a set of key criteria that fits the IPG mould?
Grant: Essentially, we’re not looking at areas that are shiny and bright and everything looks wonderful. We don’t want to get in on the other side too early before any sort of regeneration is happening. We want to get in at that mid-point where we see specific locations and specific areas evolving and growing and changing and gentrifying – all that sort of stuff. That leads to the best property investments. We’ve seen that globally. I mean you’d have seen that in areas back in Australia. I’ve seen that obviously in the UK. We’re looking always at where’s the next area people are moving to? Where is it cheaper to rent or cheaper to buy? What’s the population moving to? Where are big employers setting up? All this is the critical data that has served us well over many years in our business, Ryan.
Ryan: One of the things I like is that you have the size and the ability to invest pretty much anywhere you’d want in the world. I do know that you’ve done property developments in Melbourne before, and I do know you’ve had stuff in North America and all over Europe. So, I guess another thing is to look at is (just as a sort of sidenote) go with the company that has the ability to look at the global market. That way you know wherever they’re building is more likely to be in an area which actually has good fundamentals. You’re not just building there because it’s the only place you can be.
Grant: Exactly and I think the point I would add is that there are so many different places that, yes there are economic opportunities, but for us at IP Global we just focus on two or three key markets that we truly understand and that we’ve spent a lot of time on the ground in, most importantly. We’ve got an understanding of these micro locations. We know the developers. We know where people are looking to move to rent and buy. We basically stick to two or three key markets that we truly understand and can present the best opportunities for our investors.
Ryan: If someone wanted to understand how you are accruing and acquiring the data – do you have an auditor or do you have a third-party company come in and go over the data with you – or do you have a book for the company which represents that data?
Grant: We can provide a full overview of each of these projects. We have full financial information and financial spreadsheets. For us it’s all about trying to provide as much information for the client as possible so that they can make an informed decision (in terms of investing) and give them the confidence to go forward.
If I speak to a typical client who has looked at investing before, they say the things that hold them back are just having the time to do the research and due diligence. Obviously, we provide all of that and invest our own capital to give the client confidence. Also clients are not wanting to deal with a hassle factor of buying. And again, that’s the great thing about our business – the end-to-end model. We introduce the clients to lawyers who’ve done all the due diligence on these opportunities. We have access to mortgage financing (we have our own brokerage) and critically we do all the lettings and management. In each of these markets we have the infrastructure, so that clients can rent out their property with full confidence and will never get a phone call from their tenant on the ground. We’re going to manage all of that for them. We’re going to run their property just like any typical investment. It’s going to be ‘hands off’ for them and they can just get on with their day job.
Ryan: You know I always joke that if you’re going to buy an IPG property you don’t even need to know what colour the walls are. They will handle everything for you so that way there’s no emotion.
I do believe you guys had companies like Savills come in and audit you and put together books and things like that before in the past. The data that you guys bring to the table is really strong. If you look at a hundred different projects, IPG might only take on board one or two. I think that speaks to your success rate. The other thing you briefly touched on too, was mortgaging, and I think the second biggest mistake that expats make when they’re buying investment property is not leveraging the property. All too often I have people come to me and say “I’ve got hundreds of thousands of dollars in offset accounts to bring the rate of the mortgage down” – which is this cash that sits there doing nothing but lining the bank’s pockets. Or the other side of the spectrum is that you have young people under 45 who one hundred percent outright own their properties. They’re missing out on that magic which we talk about all the time. We talked about it in the previous video (if you want to go to the link here), which is the magic of compounding and why compounding is so important. Speaking of that from a property perspective do you want to walk us through quickly why it is so important to be mortgaged or leveraged, and what leverage means in regard to buying an investment property?
Grant: It just gives a great opportunity to essentially magnify your return. I think the thing with confidence is, if the bank’s prepared to lend their money, then basically you’re buying into a good investment option. In effect putting the bank’s money with your money. Added together, you can get a magnified return on that investment.
Ryan: Mortgaging is quite often some of the cheapest money you’ll ever get. As long as your returns are growing by more than the interest rate on the mortgage, it’s almost always a good idea (from a purely investment perspective) to be mortgaging.
Grant: The great thing at this moment in time is of course we’re living in a world where interest rates are at record lows. When we’re talking about using leveraging, it’s a great time to do that. Across our markets we are getting rates of less than one percent. We are getting 0.7 percent for opportunities in Portugal right now. We’re getting mortgage rates in Germany of not over one percent. It’s a really great time to use that leveraging. When we’re talking about getting decent yields as well, these are some of the key components of considering investing in property. The outlook as we all know is for rates to be relatively low for a period of time. When I look at my career in IP Global over the last 15 years or so, I’ve never seen rates as low as they’ve been now. So again, that’s a key component for considering property at this moment – just such very good interest rates.
Ryan: I think the third thing from my perspective that the expats should be looking at before they buy an investment property is one of the biggest ones. It’s hard to gauge until you’re really inside the industry and understand how it works. It’s easy to make mistakes in this regard because there’s a bit of salesmanship that goes on by some providers. That is – only invest in an investment property company that is also running alongside you. One that has their own money within the company themselves because they’re also taking on board risk. I understand with IPG (with investment property globally) if you guys say, build a construction development with 100 properties and only 80 of them sell, you will actually purchase the final 20 properties yourself. So you guys are always at maximum and actually do the whole process yourself.
Can you tell us where you differ from some of the competitors or other operators in the industry and maybe where people can go wrong with buying an investment property?
Grant: The key part is when you’re investing your own money you look at it very differently to if you’re not investing any money at all. Most companies for property are purely marketing on behalf of the developer. They’re not putting any capital in. They’re not taking any financial risk. Whether they sell or not doesn’t make any difference at all. In other words, you can quite often see inflated property prices. One of my big gripes is seeing inflated yields – yields that are factored into the pricing and are basically unsubstantiated.
On our side, how we counter that and how we can gain credibility (as you alluded to), is we invest our own capital in these projects. Our business is a capital-intensive business, so we don’t do many projects. We need to be very selective about what we do. As you mentioned, whatever we don’t sell by completion we have to buy ourselves. Let’s say we’ve got five units in Birmingham left at 200,000 pounds – that’s a cheque for a million pounds we need to write to the developer, if we don’t sell that stock. So, we’re looking at it like a client would.
We need to make sure (to put it bluntly) that we provide A1 pricing. The clients will do their own research and they’ll only buy if it’s fair value. We will only provide the best of the best projects at the outset. The point I’d make about the rental side is again, we have our own lettings and management business. We manage a tremendous amount of property globally and these are our own people on the ground.
What we do is we make sure our own team go to each of these projects before we launch, do the research on the markets and put together the genuine yields in the financial spreadsheets. When the client comes to complete, they know that they are getting a yield that is genuine, that we’ve correctly sourced, and that we will deliver on. Because it’s our own people, and we know that if the yield is genuine and the client is happy, the client will invest with us again.
Ryan: Really good to hear. One of the things that I’ve found is if you’re going through somebody who is only handling the marketing side of it – so there’s a lot that goes into an investment property. You’ve got to market the property to be able to sell it, you’ve got to develop the property so that it gets built, you have to have a letting agency to be able to find tenants to move into the property (or property management) and you need lawyers to make sure that everything goes through. (Well, we have to have lawyers even if we don’t want them, but the lawyers bring all the paperwork together.) If you’re only dealing with someone who is just a salesman, the likelihood of them turning around and saying, “oh well that’s a mortgage problem so I can’t help you out there” or “please speak to the lawyers, that’s their problem, I can’t help you out” or if the water heater blows, “oh well, all I did is sell the property, it’s not up to me to maintain and manage it”. They’re very sort of hands-off and once they’ve got their commission, they tend to be out the door. Whereas with IPG you guys do really look at building long-term relationships.
How many of your clients who have one property with you, do you think have more than one now, over a five-year period?
Grant: I think it’s a relatively high percentage. I’ve got clients who’ve bought once because they can only buy once – that’s the extent of their budget. I’ve got clients who’ve bought 15 to 20 properties over the years and they’ve only done that because we’ve delivered. I always talk about the fact that buying the properties is first base. That is just the start of the journey.
When a client invests, it’s up to us to see how we deliver and therefore whether the client will invest again or not.
The steps are: we introduce the client to the client services team and they outline the process for the client. They hold the client’s hand until they complete the legal paperwork. Then we have our mortgage brokerage who can assist the client so they don’t have to go bank to bank. We can package all the mortgage up and again if we deliver on that, that’s another building block to the relationship. And then of course we’ve got the lettings and management side (the critical side). If we find the tenants quickly, if we deal with any issues on the ground, send them a monthly statement – keep them very happy – then these are all the building blocks to a very successful relationship and building trust, most importantly.
And just to be candid and open, we don’t get our funds out until the client has completed on that transaction. We are genuinely aligned to the client right the way through. Many property companies, once the client has exchanged contracts, that’s them done. Because in effect they get paid at that point but from our perspective we don’t get our monies out until the project is completed. We are genuinely aligned to helping that client all the way through the buying process. Then thereafter regularly reviewing the progress of that project to ensure that the client is fully updated as to perhaps when there could be a good time to exit their investment .
Ryan: It sounds like you guys have been doing this for many years with a lot of success. Congratulations, Grant, for not only surviving in this industry but accelerating and becoming one of the market leaders. You guys are always really direct and fantastic to work with. Thank you very much for your time today and giving us a little bit of background.
Grant: You’re very welcome indeed, Ryan. It’s always a pleasure to speak with you and I look forward to speaking again soon.
Ryan: Okay guys. That was today’s episode. We brought you three of the biggest mistakes that expats make and how you can avoid them. Thanks very much to Grant Reynolds from IP Global for coming along and giving us his expertise.
The first mistake is: don’t get emotional about your investment. It matters less what colour the walls are or whether it’s somewhere you could see yourself living. It’s more important to look at the data. Make sure you’ve got really robust data like IPG does to make sure you’re making the most informed decision. Treat it just like you’re buying a stock or a share.
The second mistake that people make is: not taking out a mortgage and paying one hundred percent cash for the property. It might feel amazing to own the property yourself and to put all that cash down and know you’ve got no obligations. But by doing that you’re missing out on the magic of compounding. Make sure you’re leveraging to get yourself the best returns.
The third mistake that people make (and this is probably one of the biggest ones): is investing with the wrong company and just giving your money to somebody who only cares about the marketing and getting a quick commission. You want to be investing with a company which has truly got skin in the game alongside you.
As we said before at the start of the video, IPG have been doing it for decades. They’ve built more than three billion dollars’ worth of property, so they’ve got the size to be able to invest their own capital alongside yours and that’s where a lot of the magic happens.
A little giveaway for you – if you look in the link below, you can actually book in for a free 60 – minute video or conference call. If you’d really like to take your investment property to the next level and get your foot on the ladder, we’ve actually got a calendar link in the description below. If you’ve watched to the end of this video, you’re going to get that special prize.
So please make sure you click ‘book in’ and we’ll go through your situation one-on-one and show you how you can get on the property ladder.
Thanks guys! Have a good day.