09 Jul The best book I nearly didn’t pick up and why – Richard Pan
In 2004, when Richard Pan held a position at a major bank in Sydney, he believed he was living the dream. Work, save, retire – then one of the world’s most famous business books changed his life, but if he had known what it was about he would never have picked it up. Richard’s story is the success story in the current issue of Your Investment Property magazine and we find out what the book is and what happened when he kept reading.
Kevin: In 2004, when Richard Pan held a position at a major bank in Sydney, he believed that according to traditional standards, he was living the dream. Richard started out following the traditional path of work, save, retire, then one of the world’s most famous business books changed his life. Richard joins us to tell us that story.
Richard, thank you for your time, and welcome to the show.
Richard: Thank you for having me.
Kevin: Richard, what was that book?
Richard: It was Rich Dad Poor Dad by Robert Kiyosaki.
Kevin: Richard’s story of success is the current success story in the edition of Your Investment Property that is out now. In the article, you say “If I had known that it was a personal finance type of book, then I wouldn’t have touched it in a million years.” Why is that, and what changed as you were reading it?
Richard: I was growing up in a family with no businesspeople, no investors, so everyone was working as an employee, so because of that. And one piece of advice I was getting since I was very young was to study hard, get into a good school so that you can find a good job and work hard and save for retirement. That’s it.
So, I didn’t know that there’s an alternative plan. This is a classic example of I don’t know what I don’t know. So, while I was reading that book, what actually changed was I started to see the new possibilities. I started to ask myself “Wow, that’s really cool.” We’re talking about the passive incomes you can generate from a property portfolio. “Can I really do that legally in Australia?” That’s the question I started to ask.
In his book, he was talking about facing the same challenge, and his poor dad would say “I cannot afford it,” and at the same time, his rich dad would say, “How can I afford it?” So, the second one obviously opened up possibilities. That’s basically what I was feeling by reading that book. I feel there’s something out there that’s for me. I just have to work out a plan to get it.
Kevin: Richard, what reaction did you get from your family when you read the book and then decided there was another way?
Richard: The great thing was at the time I was just living with my wife, the two of us in Australia. I was originally f rom China, so at the time, both my parents and my grandparents were still living in China. So I didn’t really talk to them about “I found this book,” or anything like that. No, I just found this thing quite interesting and I started the journey all by myself, without really talking to them about what I’d read.
Kevin: Yes, very wise. Talking about your journey, can you describe the beginning? Like you’ve put the book down, now you know there’s another way; how did you begin?
Richard: At that time, my wife and I didn’t have any money. Both of us had just started out with an entry level job. I think I was making about $34,000 a year and my wife was making a similar amount. We were saving for a deposit, and obviously, that will take some time.
At the same time, I decided the most important thing for me at that point of time was to educate myself, so I started reading more books – personal finance or property investing in particular. And while saving the deposit, I started going to open inspections in the suburb where I was living and the nearby suburbs.
I still remember I felt so nervous. I went to some of the open inspections and literally didn’t ask any questions. And then sometimes, I asked one or two questions and I could feel my heart was really beating there.
I thought “You know what? I just want to have a feeling what it feels like talking to the real estate agents and asking those questions.” But everyone has to start somewhere, so that’s basically what I’ve done.
Kevin: I think you’ve described that feeling of starting out on a property journey quite well, how difficult it can be. Your portfolio, as we can see in Your Investment Property magazine, is not spread too geographically. All the properties are in New South Wales. Do you find it difficult with different state regulations to invest outside of the state that you live in?
Richard: Personally, that was a small part of it. It’s not really the main reason. I can think of two main reasons. As a matter of fact, we built a portfolio in the city of Sydney, and the reason for that was, number one, I am a big believer of being a suburb expert.
I think that’s actually one of the most important factors to being a successful property investor, because when you become a suburb expert, you will know the price. If you came across a listing, you would know if that’s a bargain price. And that way, you actually have the skill and knowledge to identify to identify an opportunity like this, you can take action very quickly.
To do that, no book or seminars can replace the local knowledge you will have by going out to those open inspections, meeting with local real estate agents, and sometimes talking to local people. Because of that, we actually select suburbs in Sydney so that we can go to the open inspections and do what I plan to do. That’s reason number one.
The second reason was some of the property that we bought was during the time when Sydney was really booming. So, it’s like I can get what I want in a market which increases very fast, and that makes sense for us to focus on Sydney at that point in time.
Kevin: What’s been your best investment, Richard?
Richard: I would say that’s probably my very last purchase. To begin with, we’re quite happy about the price we negotiated. I believe that was about 7.5% off the vendor’s original expected price; that’s point number one. Number two is that in the calendar year of 2017, after we bought the property, the suburb actually increased in value by about 17.5%. And point number three, we actually did a bit of renovation ourselves, so I believe that the actual capital growth for this particular property should be more than the capital-driven growth.
And also, at the same time, two new train stations are being built, a brand new primary school is being built, some commercial buildings, a retirement village, and other shopping facilities are also being built as we speak. Also, my property is inside the catchment area of the best primary public schools in Sydney. So, because of that, I still have a very positive view about the potential for this particular property.
Kevin: It’s interesting that you’ve highlighted your best investment as your most recent one, which means to me that you’ve learned a bit along the way. Now, tapping into that, I have to ask you the next question about what’s been the investment that taught you the best lesson – in other words, what you learned from – and what was that learning?
Richard: One thing I’ve learned that I think is quite important to be a successful property investor is when you analyze a deal, it needs to be based on numbers only. And also, you need to have a plan to identify any potential risk, and then minimize the risk to a level where it is acceptable to you.
At one stage of my life, I was actively looking at opportunities in mining towns in Queensland – that was actually in the middle of the mining boom – because the yields were just so great, close to 10%. But we fortunately asked three questions that changed our decision. The first question was what’s the upside? The second question is what’s the downside? And then the third one is can I live with the worst-case scenario?
We thought a mining town, because it only has one major industry, the risk is probably too high even if we can get a pretty decent yield. So, because of that, we decided to walk away. That’s something really fortunate for us that we didn’t go ahead, because we all know what happened in the last 24 months.
Kevin: That is such a powerful lesson too. Richard, a final question. In the article in Your Investment Property magazine, you give us four property buying tips. Now, one of those is to know why they are selling. How does that help you, Richard?
Richard: I think in one sentence, if you know the reason they want to sell the property and then you actually customize your offer to meet their needs, you actually increase your chance for your offer to be accepted. That’s why I always ask the questions when I talk to the real estate agent and then find out the story of why they are selling now and tailor my offer.
A lot of people think buying property is all about the price – how much you’re paying for it – and they actually ignore a very important fact that a lot of times, terms are also an important factor. Sometimes you cannot negotiate the price but you can negotiate the terms.
You can maybe negotiate that you can access the property earlier if you plan to do a renovation. That’s basically if you know the seller is already committed somewhere else, the property is vacant, and then if they’re not flexible with the price, see if you can negotiate a longer settlement where you can access the property earlier so that you can start the renovation earlier.
Kevin: Yes, you certainly learned a lot along the way, Richard, that is for sure. You can read Richard’s story in full – it’s a success story – in the latest Your Investment Property magazine. He’s been our guest on the show today.
Thank you so much for your time, Richard, and all the success to you and your wife and your family in the future. Thank you.
Richard: Thank you very much, Kevin.