20 Jul The Meaningful Mistake
It was the blunder that changed the course of his career. Property market analyst John Lindeman shares his early stab in the dark strategy and how this failure led him to
the housing market’s Holy Grail. Dinah Lewis Boucher [@DinahBoucher]
Picture Melbourne city in the 1970s. This cool, creative hub was where a pair of early 20-somethings had just touched down from Sydney. Young and bright- eyed they were ready to make a go of their new lives together, and with John’s new job as a contracts officer for Telstra, purchasing their first property together was the next priority box to tick.
During this era, it was Melbourne’s inner-city suburbs that were the most affordable areas and this savvy young man had spotted its potential.
“I saw that Melbourne’s inner-city suburbs were dilapidated. I thought ‘Hang on, in Sydney, areas like Balmain and Paddington were being gentrified and turning into quite developed areas, so it was only a matter of time before this happened in Melbourne’.”
So, John and his wife soon eyed up a shabby terrace as their first purchase.
“We bought an old rundown terrace house in Hawthorn and paid $20,000 for it,” he says.
It may sound stupidly cheap today but John assures me it was a lot of money at that time.
“All of our Melbourne friends were buying brand new houses in the outer suburban areas and they thought we were mad for buying this old and manky terrace,” he recalls.
“Our friends asked ‘Why do you live in Hawthorn – there’s nothing there?’ but they were prepared to travel for 40 minutes by train from their outer suburban areas.”
John says for them it was all a bit of an adventure.
“When you’re 21 and 22, you see life as full of excitement and possibilities. So, we just went ahead with it,” he says. “I had absolutely no experience with property.”
John said Hawthorn’s proximity to the city, being only three train stops away, meant he could be at work within 15 minutes.
“And I thought that was brilliant,” he recalls.
The couple renovated the Hawthorn terrace and within three short years the property had doubled in value, so they elatedly sold it for $40,000.
“We were very happy with that outcome,” he says.
“I now know that property growth was because of the fact terrace houses were starting to become more attractive, so demand was going up and also the market went up in price. But at the time I had no idea. I just thought that’s what happened when you did a renovation.”
Learning the hard way
“I thought, ‘well, that went beautifully’ and I was ready to go again,” John says.
Off the back of his property high, John was eager to buy, renovate and repeat the success of his first property experience all over again. By now, he and his wife thought it might be time to start their family, and given John’s great childhood experience growing up along Sydney’s beaches, the pair looked for property in Melbourne’s bayside.
You may call it a ‘stab in the dark’ strategy, but with little-to-no research given to understanding Melbourne’s property market, they went ahead with their next renovator project, which was a three-bedroom house in the southeastern suburb of Mentone. Using all the proceeds from their successful Hawthorn sale, they secured the Mentone property for $40,000.
“I’d been criticising my friends for what they were doing and then went and did the same thing. It was very nice area, but now I had a 40-minute commute on the train every morning and evening to work.”
The house required substantial works to be done and the young couple set out to achieve it with all guns blazing. It involved a structural renovation as well as a room added to the back of the house along with a new courtyard.
“We landscaped the garden and made everything look very homely. It involved all of our spare money and time for the next three years. This renovation absorbed everything,” John says.
To focus on the renovation and balance John’s full-time workload, they even put their plans of starting a family on hold.
After three years of blood, sweat and tears John was ready to cash in but crunch-time hit hard when it came time to sell. Instead of cashing in for double his money as he’d imagined, he learned about the housing market where it hurt the most – the hip pocket.
“We actually lost money on this project,” he says.
“We sold the house for what we’d purchased it for and that was a lot of lost renovation money and a lot of lost effort.”
And the experience nearly pushed John to give up property altogether.
“Initially I was quite bewildered and perplexed that such a thing had happened. I just assumed that if you did this process, it’d always work,” he says.
“What I didn’t realise was, in the same way Melbourne’s attraction to terrace houses was at a different and later stage than in Sydney, Melbourne had a different attitude to bayside living than Sydney-siders did. So, there are a lot of cultural differences affecting property value, which I really didn’t understand at all.
“Plus, the kids came a few years later than they should have, because that renovation didn’t work out.”
Twist of fate
You can call it destiny, fate or whatever you like, but sometimes in life things aren’t supposed to work out as you’d planned. And that’s where the magic happens – if you’re paying attention to it, that is.
“The experience did affect the way I thought about property. The fact that my second investment project didn’t work made me think, ‘well, I’ve missed the point here’.”
The fact his Mentone property didn’t increase in value like the Hawthorn purchase got John deliberating, and this very experience actually changed the trajectory of his career.
“Had the properties been purchased the other way around, I’d never have gone on with property at all,” he says.
“If I’d bought the house in Mentone first, I’d probably be a school teacher today and not have any investment properties. I think this happens to a lot of people. They lose money the first time they do something in property and then they never go again. They give up.”
John was convinced he could repeat the success of his first property venture but first he committed to knowing all he could about the market.
The Holy Grail
John engrossed himself in all things property from reading every property book he could unearth, attending all the expos, property boot camps and seminars he knew of, just to understand how the housing market worked. While he heard property tips, no one could share a great deal about how the market actually worked. It wasn’t until he moved back to Sydney to work for the Australian Bureau of Statistics that he learned about trend analysis.
“And I took to trend analysis very readily because I could see the principles applied to the property market,” he says.
And that’s how, after years of researching, he uncovered his own Holy Grail of understanding the property market.
“It’s about knowing how to pick areas where prices are likely to rise and avoid those where prices are likely to drop.”
So what’s the secret? John says it’s about supply and demand – that houses are a commodity like any other and work to the same rules. What you measure is the number of properties for sale in your suburb of interest against the number of properties sold in that suburb for the past year. So, let’s say there are 30 houses listed for sale in your suburb of interest, and 30 sold in the past 12 months, then that’s what John calls a neutral market.
“To access this information is easy, just look at annual sales data in the back of the API mag against current listings for that particular suburb, and you can do that for houses or units,” John says.
“Where trend analysis comes into the picture is that you can track the changing supply and demand indicators and then work out at what point the demand is high enough to translate into price rises.
“If sales start to go up and listings go down, then prices are going to start rising and vice versa. And just by tracking those two figures you’re actually predicting something that’s going to be happening several months ahead.Some experts claim the secret to success in property investment is ‘time in the market’, that to buy and hold is the key, because property tends to rise in value over time and growth eventually evens out everywhere.
“To them it doesn’t matter where you buy as long as you hang on to the property for as long as possible. I’ve learned how wrong they are – that where and when you buy and sell, which I call timing the market, is the Holy Grail because it empowers you to invest in areas with growth potential and avoid those where prices are likely to fall.”
This property market analyst and API columnist certainly didn’t foresee his future real estate career in those early days. But it was his Mentone mistake that was the catalyst to undertake a lifelong path of learning and explaining to others how the housing market works.
“So, that’s the Holy Grail that I discovered and the beauty is I can share it with everyone else,” he says.
Years later, when he started seriously investing again, John says he was at the point in his life where he was looking for more cash flow-type property investments as opposed to the type for best capital growth and discovered that the same trend analysis principles applied to rent as they did to price.
“My only regret was I didn’t know all of this when I was 21, because if I had I would’ve had a much quicker start in property investing,” he laughs.
Oh how we all can relate to the phrase, ‘if I only knew then what I know now’. It’s the beauty of hindsight and that’s what learning from other people’s mistakes is all about.