How to Build a Property Portfolio Without Owning a Single House

Bryce: [00:00:31] Welcome to get started investing in this podcast, we cover all the basics that you need to start your investing journey. Are you joining us for the very first time? Is this the very start of your investing journey? Well, before you dive into this episode with us, our feed is designed to go from the very beginning, so we strongly recommend that you scroll up to the start and hit episode one. If you're feeling brave and just want to dive in. And of course, don't let us stop you here at GSI, we unpack all the jargon and the confusing bits here your investing stories with the goal of making investing less intimidating and we want to have a good time along the way. My name is Bryce and as always, I'm joined by my equity buddy Ren. How are you going?

Alec: [00:01:07] I'm very good. Bryce. Great to be with you. We are coming towards the end of the year, but the content does not stop and you start every episode with the reminder that the fade is designed to go from the very beginning. Yes, to go back. But if people have stuck with us and are just new to get started investing, this is a good one to start with because all over the world, from the US to Australia and everywhere in between. There's one goal that unites young people the dream of home ownership, fair call and more and more. That dream is feeling out of reach, and we've got some numbers to talk to in a second. But the good news is there are ways to invest in property without buying a house, and that's what we're going to talk about today. [00:01:54][47.1]

Bryce: [00:01:54] Yes, and not just residential property, although that is the dream that unites us all. Yeah, I don't know too many of our mates, those offices over there who have much of a dream of owning rural commercial warehouses. But hey, if you had, you would have done pretty well given what's going on with warehouses at the moment. But let's let's get stuck in. You did say, Ren, that we are getting to the end of the year. We've only got a couple of episodes left before Ren and I take a bit of a recording break, but we've got an awesome series coming up over summer. It's our summer series with with superhero and we're going to be hearing the stories of many members from the Get Started Investing feed community covering some really big, important questions, major mistakes, lessons, you name it. So it's going to be there for you while you're also taking a break and putting the feet up over the Christmas period. So make sure you tune in. [00:02:47][53.1]

Alec: [00:02:48] Yeah, can't wait. We've spoken to some of the members of the Equity Mates community and some influencers as well, some names you're probably familiar with. So that should be a great series. But before we get to Summer Bryce, we always do like to squeeze as many things into the year as possible. And there's one more thing that we should remind everyone of quickly before we get into the episode. [00:03:12][24.2]

Bryce: [00:03:12] That's it. The Equity Mates Awards for 2021 The inaugural awards are not far from far from finishing. The finalists have been announced across on our Instagram. Go and check it out where and Facebook. But we're looking to recognise and reward some of the platforms and people that have contributed enormously to the Equity Mates community and retail investors. And we're looking for you to vote for your favourite expert investor that we've had on one of the shows across the network. We're looking for Product of the Year Platform of the Year Sorry ETF of the Year. Community Member of the Year and also business leader of the year. So your vote does count. The form will be in the show notes, but also you can check it out on our Facebook page on the discussion group and Instagram. [00:04:02][49.9]

Alec: [00:04:03] Instagram bio, you name it, [00:04:05][1.9]

Bryce: [00:04:05] or wherever you normally find links, so please do go and vote. The voting closes on Thursday and will be then having a bit of an awards ceremony at Equity Mates HQ. [00:04:13][8.2]

Alec: [00:04:14] Bryce Bryce is designing a little bit apprehensive about how it's all going to run, but he assures me it's going to be good. But before then, we're here to talk houses and property investing. And let's start with this year because it has been a crazy year around the world for housing wherever you're based. You've probably heard local news about house prices, but rest assured this is a global phenomenon that we're witnessing. So leading the pack, I think, is New Zealand. Between July 2020 and July 2021, 31 percent increase in the average house price. Yeah, okay. Well, I was expecting more of a reaction from the right. Crazy 31 percent. [00:04:58][43.8]

Bryce: [00:04:58] Yeah, I mean, it's it's all relative as well, though in my like 31 percent great markets also seem like assets are just going nuts. When we've spoken about this before, like it's just across the board, everything's going crazy. Yeah, unfortunately for those looking to get into the housing market, these numbers aren't going to be very new, aren't going to be nice to hear. [00:05:20][21.3]

Alec: [00:05:20] Yeah, OK. Well, if that number didn't surprise it and the rest one, so I'll go through them quickly. The next highest in the country that I looked up was Australia between. 10, 20, 20 in September 2021, twenty point three percent average increase. But Sydney led the charge twenty eight point nine percent average increase. America not far behind between August 2020 and August 2021, nineteen point nine percent average. But some of the some of the submarkets, like some of the regional areas in America, are just so hot. Yeah, yeah, it's just like Silicon Valley money spreading across the world because I can work from home. That's an overly simplistic explanation, I am aware. But and then even in the UK, not as much, but between August 2020 and August 2021, ten point six percent increase again, like that's more than the stock market averages in a year. Yeah, yeah. [00:06:15][54.8]

Bryce: [00:06:16] Well, I am looking at the S&P 500 because some of those numbers, they were March 2020 to March 2021. And so what were they? Well, there was one. There wasn't a July 2020 to July 2021. Let's have a quick squeeze on that [00:06:30][14.8]

Alec: [00:06:31] because yeah, the reason that I jumped in that was if you were going to do the March 2020 to March 20, 17 percent, I know the guy. Yeah. [00:06:37][6.0]

Bryce: [00:06:40] So you're looking at yeah, thirty five percent for the S&P 500 for that period of time. [00:06:44][3.9]

Alec: [00:06:44] So not bad. This episode is not going to devolve into investing in the stock market they invest. No, no, no, no, no, no. This is just you can invest in both [00:06:54][9.9]

Bryce: [00:06:54] cash zero point zero one Yeah. [00:06:56][1.7]

Alec: [00:06:57] Yeah, yeah, gold probably flat. But look, so that's a this year phenomenon. We're living in a world of low interest rates, of money printing around the world and house prices going crazy. But longer term housing has been an incredibly strong investment and I've only pull numbers from Australia here. It does actually differ around the world, but in Australia, the last twenty five years, ten point one percent. That's good. That's great. [00:07:26][29.3]

Bryce: [00:07:26] Yeah, yeah, that's why people want to get into property. [00:07:28][2.1]

Alec: [00:07:29] Yeah, yeah, yeah. And even with prices so high, property remains attractive for two reasons the two reasons that we invest capital growth. [00:07:39][10.1]

Bryce: [00:07:39] Yeah, and getting a bit of an income stream. Yeah, that's [00:07:42][2.9]

Alec: [00:07:42] it. That's it. Well, so if you look at the options based on their risk profile to getting paid in income, you know they pay you more than bonds and they're less risky than stocks, properties and then capital appreciation. Well, everything we've just been speaking about, the price just keeps going up. Yeah. So the two ways you make money is investing. You can sell it for more later, and it pays you while you own a property, ticks both boxes. [00:08:08][25.6]

Bryce: [00:08:09] Yeah, if you're investing home ownership, you're not getting a yield. I think a lot of people, you know, you're relying on that capital appreciation. [00:08:16][6.8]

Alec: [00:08:17] And so what we mean there is like if you're living in it, no one's paying your rent. Yeah, yeah, yeah. [00:08:20][3.6]

Bryce: [00:08:20] You're not actually going to see a return on that until you sell it, hopefully. If, yeah, if you're getting 10 percent over 25 years, yeah, yeah, you're going to get the capital growth when you got to sell. But there's no it's not like stocks where you can buy and start getting that dividend straightaway. But yeah, if you're an investing in property, then that nice yield coming through from people, rent and or whatever it may be. [00:08:41][20.9]

Alec: [00:08:41] Yeah. And I think the other thing to note here is that governments around the world have incentives to keep property growing. Unlike stocks where the majority of people don't, the majority of voters potent qualification have like this emotional and deep seated connexion with the housing. Mm-Hmm. Scott Morrison doesn't think if the stock market falls 15 percent, I'm going to lose the election. Yeah, but he very well could think of the housing market falls 15 percent. I might lose the election. Yeah. And that that creates an incentive structure and we see it in the plethora of programmes to support housing. And I think what New Zealand have done where they've said housing is too hot, we need to slow it down is impressive in its political bravery, not for anything else. [00:09:26][44.8]

Bryce: [00:09:27] That's classic New Zealand. Yeah, they're good at that, leading the way. So look, there are ways in which we, as retail investors, can get access to property without having to buy a house. And we're going to go through four of those ways now just to name them. We've got listed options on the stock market, so we've got rates, real estate investment trusts and ETFs. There are a couple of unlisted options that you can do, as well as a bunch of new apps and platforms that are coming to the market. And then there is another way that you can jump in through the sort of bricks and mortar, sorry, the picks and shovels way. And that is also through the stock market as well, investing in companies that are exposed to the housing market. So Ren, let's start with rates, real estate investment trusts and ETFs. [00:10:21][53.7]

Alec: [00:10:22] Yes, listed [00:10:22][0.6]

Bryce: [00:10:23] option. [00:10:23][0.0]

Alec: [00:10:24] So the great thing about the stock market is you can invest in more than stocks. You can invest in a variety. Of asset classes, including property, so according to a list, we found there are 80 investment options listed on the ASX that are in the real estate industry, 30 of them are in the management or the development of real estate not owning real estate, per say, and then 50 of them are listed as real estate investment trusts. And a real estate investment trust is basically a company that owns property and you can invest in that company. And they, similar to an individual person who buys a house, is an investment. A real estate investment trust has billions of dollars of property as an investment, and they make money as that property gets revalued higher and higher. And they also make money from tenants from, you know, companies was leasing offices from them or warehouses or, you know, any any type of property you can think of. So there are 50 rates listed on the ASX that's hopes so many to choose from, and they cover a variety of different parts of the market. You know, you'll get like industrial, you'll get offers, you'll get a mixture. One thing that you don't get and I think there's an opportunity there for someone to fill that gap is a pure play residential housing, right? [00:11:50][86.8]

Bryce: [00:11:51] Yeah. So let's make this clear. All of the rates that we're talking about all involve, as you said, different types of property, commercial, industrial, warehousing, you name it. But there's nothing that if you're sitting back going, I just want access to the hot market. If housing residential housing here in Australia, there is nothing that you can invest in through the stock market that would give you that access. [00:12:15][24.1]

Alec: [00:12:16] Yeah, yeah. So to give you an idea of what you can access through the stock market, we've pulled out the top five rates in terms of market cap. So these are just the biggest. No, this is not us saying they're the best in any way. They're purely the biggest. So the biggest in Australia is Goodman Group. They have over $50 billion in property that they own 3.4 million square metres and they they own property in Australia, New Zealand, Asia, the UK, Europe, most of the world, maybe even the US now as well. But yeah, so they're massive. So if you if you just want to invest in property globally, there are options like Goodman on the ASX. The next biggest one is Centre Group, which a lot of people will be very familiar with but may not know the name. Centre Group own or the Westfield shopping centres across Australia and New Zealand. So if you've ever shopped at a Westfield that shop that you shop that was paying rent to centre group and you could invest in centre group and, you know, be a shareholder and benefit from that rent payment. What about some of the other big ones? [00:13:23][67.0]

Bryce: [00:13:23] Centre got absolutely slammed during Covid, as you can imagine, with the impact on people going to shopping malls. Some of the others so Stockland Corporation, so they have shopping centres, housing estates, industrial real estate, retirement housing even, and they have a pretty diversified real estate investment trust. So again, it's not just an investment in one type of real estate. They spend a whole bunch. One that you may have seen in some of the big capital cities as you drive around and say, Oh, the big skyscrapers being built is Mirvac group. They not only have investments in and own property and residential, retail, office and the like, but they also design and develop and manage a whole bunch of real estate. So they're a true end to end real estate play. So, yeah, they're pretty massive. [00:14:17][53.6]

Alec: [00:14:17] I think the important thing to stress because with both Stockland and Mirvac, you mentioned that they have some residential and Mirvac, we'll know for those big apartment buildings. Yeah. So that that you can get exposure to the residential housing market. There's no pure play, you know, just residential. The last one to round out the top five is Dexus. We interview the DEXA CEO earlier this year on the Equity Mates podcast, so you can go and listen to that episode. But they're a they've got about thirty two billion dollars in office and industrial real estate. So, yeah, there's a bunch of options to choose from there. The real estate investment trusts, and basically they're a company that own property and you can invest in that company. There are also ETFs, so there's a number of ETFs that exist in the market that essentially buy property. But the way that they do it is that they buy the real estate investment trusts. Yeah. So the ETF will buy a bit of Goodman Group, a bit of centre group, a bit of Texas, a bit of, yeah, a number of the other rights. And then you'll get, I guess, like the the average of them, although the market weighted average of them all. [00:15:29][71.8]

Bryce: [00:15:29] A classic example is VAT. I'm pretty sure the Vanguard Australian Property Securities Index or whatever it is, and it's exactly that has a bit of everything to [00:15:38][8.8]

Alec: [00:15:38] not just be vanguard centred. VanEck have one movie. But there's so many out there. There's know state straight of a listed property, one that just takes the ASX 200. Yeah, there's so many out there, so you can do some Googling if you want to say your options. But basically the way to conceptualise it is that rates. Other companies that directly own property and then ETFs sit above them and they own a number of different rates. And both of those you can invest in directly through the share market. So that's option one. If I if I can't afford a house it, but I want to get exposure to the property market, I can do it through the share market. Hit me with option two. [00:16:20][41.2]

Bryce: [00:16:20] Bryce option to is your unlisted approach through managed funds. Just like you can invest in the stock market through a listed way, you can give your money to a managed a fund manager who is investing on behalf of of their investors in the property market. It's not done through the stock market. You go off market, find a fund manager that you think is an expert in investing in property, and then they'll use your money to go and invest in a bunch of listed unlisted properties. [00:16:51][30.8]

Alec: [00:16:51] Yeah, now I think this is more. This is basically just a tick and flick exercise for us because the thing with unlisted funds is they generally have quite high minimums, like a minimum investment of 50 grand or 100 grand. If you have 50 grand or 100 grand to invest as a minimum, you're probably well on the way to actually getting on the housing ladder. The only the only thing I want to mention here is we mentioned with listed funds. There's no pure play Australian residential fund. There is an unlisted fund or two unlisted funds. I could find that a pure play Australian Residential Crescent Finance never heard of them before, but they have a crescent growth fund and a crescent income fund, both of which are purely focussed on residential property. Just wanted to mention that, but I think unlisted for May is not really the route I'll be going down if I wanted to get exposure to property just because one the paperwork we had paperwork here and to the incredibly high minimums and minimum investments kind of negate the whole point of what we're trying to do here. [00:17:57][66.3]

Bryce: [00:17:57] But as you said, if we're talking about how you can do it, that is an option if it's right for you. Before we close out the other two, which is all the apps and that are starting to come to the market, [00:18:09][11.6]

Alec: [00:18:10] yeah, the next two are exciting to and [00:18:12][2.1]

Bryce: [00:18:13] and then closing out with the picks and shovels, the companies that are exposed to the housing market, we're just going to take a very quick break to hear from our sponsors. As with brokers Ren and access to the stock market, there's now more and more apps coming to property market, giving people more of an opportunity to access residential property without having to throw down a 20 per cent deposit. [00:18:40][26.9]

Alec: [00:18:40] That's right. That's right. There's some pretty cool functionality coming to the market. So let's go chronologically. The first one, the one, the earliest one I'd never heard of before. I'm interested. Have you ever heard of Douma? No. Yeah. So this, I think, was the first one. Established in 2011 and it it is a crowdfunding model where investors are able to buy a like a fractional share of a residential property. So, you know, the I think the way it works is Datacom buys it. You know, they buy. What's your address? No, they buy a house and then you can buy a fraction of that. And then, you know, you get a fraction of the rental income. And if it gets sold later, you get a fraction of that. That's essentially that was the first one time column I actually hadn't heard of them, but established in 2011, still kicking around. Then one that I had heard of was started in 2014 briquette. Yeah. Have you heard of that? Yeah. [00:19:41][60.9]

Bryce: [00:19:41] Yeah, they've been around for a while. [00:19:43][1.1]

Alec: [00:19:43] Yeah. So they use a similar crowdfunding model. They term themselves a stock exchange for residential real estate investments. And basically, you it's a minimum of two hundred and fifty dollars worth of bricks or units in a property trust. But you can buy and sell units in that trust and I guess, get exposure to the property market or get exposure to particular properties from as little as two hundred and fifty bucks. Mm-Hmm. So that's pretty cool. [00:20:14][30.7]

Bryce: [00:20:14] Yeah, I think the advantage with that one was the ability to sell in and out without having to sell the house. I guess they're kind of at the time, I'm sure a lot of the other platforms now also give that ability. But at the time, that was their one of their holdings. [00:20:28][14.5]

Alec: [00:20:29] Yeah, we should be very clear that we don't use any of these platforms, but we wanted to do an episode to talk about them. But our knowledge is limited to really what we're talking about. So if you want to actually compare Brick X and Time.com and say, what are the differences between the two options? Do your own research. The last option that takes a bit of a different approach to the crowd funding model is proper. Yeah. Had you heard of that? [00:20:56][27.0]

Bryce: [00:20:58] No. [00:20:58][0.0]

Alec: [00:20:58] So the first I heard of them was for our Equity Mates awards. They got nominated a couple of times in terms of Platform of the year. So basically, they are a I guess you would say, a marketplace that brings together people that are interested in buying a property together. Yeah. So rather than Brick X and dome com, where the actual investment and the owning is centralised on the platform, property just is a place where people meet and then they go and buy a house together. But it looks as though it was a Bryce goes on and says I am looking to buy 50 percent of a house in fall close. That's probably what you're going to end up living one day. And then I go on and say, You know, I say, Bryce, he's put that up and I say, Well, yeah, I want to put the other 50 percent in and then together we can buy the house. So a pretty cool model. Yeah, requires a bit of trust. [00:21:52][53.8]

Bryce: [00:21:53] Personally, it's probably the one that I would lean towards, and I'm not saying that this is a recommendation of any sorts, but you you own the underlying asset at the end of the day with that one. [00:22:03][10.5]

Alec: [00:22:03] Yeah. For me, it's just like, how do you decide who gets to live in the house or is it? Well, I mean, is it just you have to rent it out? Well, I guess you just agreed between the two of you, but it's [00:22:13][9.5]

Bryce: [00:22:13] like you'd want to make sure whoever you get the trust element is massive. With that, with this sort of stuff like, you know, all of a sudden someone could turn around and be like, I want to sell and you're like, I don't want to sell. [00:22:23][9.7]

Alec: [00:22:23] Yeah, I got out. Yeah. And if I like, my example is 50 50, but I guess if you had said, I want to buy 70 percent, I don't want someone else, about 30 percent, I guess you as a 70 percent, you just have majority size. [00:22:36][12.4]

Bryce: [00:22:37] I don't know. Yeah. And the other thing is with the Brick X and Co. and again, don't know too much about it, but I question the quality of the properties on the platform because if they are, they are they going out and be bidding up as crazily as someone who's desperate for these properties? Do you know what I mean? Like, how good are the properties that you're getting that these platforms are buying and do your own research? I have no idea an answer to that question, but these are the things I would think through. It's easy to look at it from a high level and say, Oh, this is awesome, I can buy a brick and a house 250 bucks. But is is it the best place? You can put that two hundred and fifty bucks? [00:23:15][38.6]

Alec: [00:23:16] Yeah, yeah. Now, if you're listening in the US, some of the names to look for are companies like Fund Rise. Realty mogul and Pier Street, so similar functionality like wherever you're listening around the world, there will be similar crowdfunding platforms for property that are emerging to big watch out for me when it comes to these apps because I love the innovation, I think the innovation is great, but too big. What charts? First of all, face to face here at Equity Mates and the fees can be quite high. I don't want to pick on them, but it's the only data that I pulled, so I'm going to pick on them. Brick X Charge three point one five percent. And then have property management fees on top of that. Now that's a lot higher than the share market. But I think to be fair to these apps, you got to compare apples to apples and you got to compare. Investing in these property crowdfunding platforms with investing in property itself? Yeah, because there's a lot of fees and charges and taxes and costs that come with investing in property. The first watch out for me is faith. Yeah. Second one is liquidity, because a lot of these apps are really taking what's worked well in the share market. They sort of micro investing, easy to use accessibility focussed apps, and then they're applying them to property. But the share market is incredibly liquid. There's millions and billions of dollars in shares changing hands every day, and it's easy to find a buyer or seller. Property is quite illiquid, it's slower to sell, and it's harder to find a buyer and sometimes you don't find a buyer. And so [00:24:53][97.5]

Bryce: [00:24:54] not in this market, [00:24:54][0.5]

Alec: [00:24:55] not in this market. That is true. That's true. The just when you're looking at different options on these apps, just understand how easy it is to get out. Yeah, agreed. [00:25:05][9.8]

Bryce: [00:25:06] And I think that's changing with them. But yeah, I completely agree. You don't want to go in there and find that you're you're in until the app decides to sell that, that house. [00:25:14][8.7]

Alec: [00:25:15] And to be fair, I think one of them, I think Datacom has like a liquidity function to, like, help liquidity to the market. But at the end of the day, like it's all additional mechanisms they're trying to build because the underlying asset isn't as liquid as the stock market. So that's just a watch out for me. [00:25:32][16.9]

Bryce: [00:25:33] Yeah, nice. Well, let's close out by having a chat about the company's Ren that you can invest in through the stock market back to the stock market closing out with that, companies that you can invest in that don't own or buy real estate but are exposed to the housing market and obviously will benefit from the rising tides of house prices and building and development and everything that goes in with it. So here in Australia, two that come to mind REIT group and domain. Yeah, or real estate dot com. One of the most recognisable online brands and a crazy stat. 145 million visits in the month of October to REIT Group Real Estate Dot com as everyone was it [00:26:17][44.3]

Alec: [00:26:17] just to be clear dot com Donahue [00:26:19][1.6]

Bryce: [00:26:19] Real Estate dot com [00:26:20][0.5]

Alec: [00:26:20] I've just tik-tok real estate dot com is nothing like it doesn't go to a website. Surely someone's trying to buy that? What the hell? We have discussed these two companies and if you're in the US, you're thinking Zillow or I think Opendoor or realtor, there's a there's a few over there the toll roads for the modern property market. If you want to buy or sell a house, you're using these. You're using these platforms to clip the ticket on almost every transaction because you need to list on those platforms. And importantly, as house prices go up, their ability to charge more goes up because the like as a percentage of your expected return, their fees are smaller so they can increase their fees. And really, you're not going to sell a house in Australia if you don't list on those platforms or at least on Aria dot com. So for us, that's like a business that is essential to the market and can benefit from the market going up. So that's another way to get exposure to the market. [00:27:27][66.5]

Bryce: [00:27:27] Yeah. And if you are interested in hearing more about ARIA Group, we are fortunate enough to be out to speak with the CEO, Owen Wilson, and he will be part of our summer series over on Equity Mates investing podcast. So make sure you go and check that out. We do a bit of a deep dive on the housing property market here in Australia and REIT group. So Ren to close out. It's a good point to mention that there is a big difference between investing through the means that we've just spoken about and obviously taking a mortgage and doing it yourself. And that is the power of power of leverage. [00:28:04][36.7]

Alec: [00:28:05] Yeah, buying a house is seen as just like big personal finance win. And it is. It's really impressive. But a big reason that it sets you up financially is because it's the only asset that the banks will allow you to borrow 80 to 90 percent of the value of to buy. And then you got a whole bunch of tax advantages from having a mortgage and all of that stuff. Any of these options that we've spoken about today, you're not borrowing nine times what you're putting in to buy more. Yeah, so like that, that's just the only thing you don't get that you don't get that leverage to return that you do in property, but [00:28:41][36.1]

Bryce: [00:28:41] you can, in the stock market, take out some leverage if you want to. And there are many means to do that. And that's a [00:28:46][5.4]

Alec: [00:28:46] whole I [00:28:47][0.5]

Bryce: [00:28:48] will leave that for now. But Ren that brings us to the end of that episode. It's certainly, as you said, at the top, a dream for a lot of us to get into the housing market. And if you are feeling a little overwhelmed and left out, I hope that we've been able to demonstrate that there are other ways that you can tap into not only the residential market, but plenty of other property options, both here in Australia and around the world. So we'll leave it there. We're coming next week with our final episode for the year before we go into our summer series through the end of June, and we're closing out with another community member interview with one of our one of our new employees here at Equity Mates Darcy. So we'll pick it up next next week. Otherwise, have a good week and Ren we'll talk [00:29:30][42.7]

Alec: [00:29:31] talk next week. Sounds good. [00:29:31][0.0]

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