08 May Why I don’t chase hot spots – Chris Gray
Star of Sky TV’s Your Property Empire, Chris Gray joins us to discuss hot spots and why he is not a great believer. He tells us where he prefers to invest and why.
Kevin: A question I’m asked all the time is, “Is there really a hotspot?” I guess this comes about because people love to think they’re going to get there before the rest of the crowd. I’m interested to know about this, and it’s a conversation I’ve had a number on a number of occasions with Chris Gray, who is a buyer’s agent from Your Property Empire and also a host of the Sky TV show of the same name, Your Property Empire.
I wonder, Chris, does this come up in your dialogue with people, as well?
Chris: You’ve hit the nail on the head there. Everyone wants a bargain, everyone reckons they got it for the cheapest price, and everyone thinks they got into the right area – the next up-and-coming one – at the right time.
Definitely, there are hotspots around Australia and around the world, but it’s like picking stocks; if you really are a genius and you can pick the lows and highs, you can make a fortune probably even if the market is going down if you pick the right kind of properties. But even the experts at Residex, RP Data, and SQM Research, most of those guys say they can understand trends but they can’t pick the peaks and the troughs.
I’ve been buying property for 20 years – we buy maybe 50 or 100 per year – but we don’t try and do that. Most of our clients are generally higher income. They’re not trying to get rich overnight. They know that slow and steady wins the race, so more they’re going for the classic Bondi Beach in Sydney or St. Kilda down in Melbourne, and they’re trying to say, “I want nice consistent growth. If a GFC comes up, I don’t want it to halve in value. I don’t expect it to double, but a nice 5% or 10% forever suits me.”
Kevin: I remember back, and I’m sure you would too, several years ago when one of the major hotspots was anything around a mining town, and I guess you only have to look at some of those now to realize that while they may have been hotspots in their time, they can also crash as fast as they can go up.
Chris: That’s the problem. We’ve had lots of clients who have gone to the seminars and gone to the various property expos – you can always tell what the flavor of the month is by the property expos, whether it’s U.S. property or mining or whatever else – and they’re saying, “I’ve got 25% yield and X percent growth,” and all the rest of it, but now they’re potentially getting zero yield and suddenly their $800,000 property is only worth $400,000.
That’s the thing. A lot of the seminar people have all the knowledge and they know what they’re doing and they’re getting in and out at the right time, but unfortunately the average punter on the street quite often is getting in a few years too late and they’re going to miss the boat.
Kevin: Generally, I find people who are looking for hotspots are really looking to get in and out quickly, as opposed to the strategy you’re talking about there, which is blue-chip, which I guess is buy and hold. Chris, is it?
Chris: It is. You do a regular radio program, and I do a regular TV program. The hardest thing for me is to try to talk about something new, because in my mind, in my book, nothing has changed for 10 or 20 years, because those suburbs haven’t really changed. We just buy when we have the cash to buy and we hold on.
It’s not sensationalism; there’s nothing newsy about it. It’s kind of boring. They’re not the most beautiful properties. They’re the ones a block back that are kind of dirty and old, but they’re in the best locations and we can improve them.
It’s not newsworthy type stuff; it’s the old hare and the tortoise. The tortoise just keeps going, but at the end of the day, it reaches the end. Whereas if you’re the hare, maybe it works out one decade, maybe it doesn’t work the next.
Kevin: Chris, with blue-chip types of properties that you’re talking about there, are they all necessarily inner-city properties, or do they vary in their location?
Chris: My philosophy from going to lots of seminars and reading lots of books is that I typically avoid the CBD because there’s no limit of supply – generally, you can keep building these massive towers – and there’s limited demand, because not everyone wants to work in the heart of the city, especially when they have families and they want fresh air and everything like that.
I’m an advocate of going the 5 K to 15K – or 2K to 15 K in certain suburbs – to get the area where there are three-story-high limits, so there’s no more supply of property. All the properties are built up next to each other, so you can’t physically build another property. There’s lots of demand from the young professionals, the 25- to 35-year-old suits who will always have jobs” because they’re young and adaptable. They probably have wealthy parents, as well.
They might be earning $75,000 to $100,000 each, so you get two people in a unit and they’re earning $200,000 or $300,000. That’s why these young people can afford million-dollar properties and million-dollar rents – because they’re earning a lot of cash.
From what I’ve heard from Residex, who has come my show for donkey’s years, he says affordability is a problem around Australia and around the world, but it’s not in these suburbs because these young kids have cash and they have cash to spend.
Kevin: It’s always good talking to you, Chris Gray. You can catch Chris, of course, on Sky TV.
Chris: Fridays at 6:30.
Kevin: It’s called Your Property Empire, Fridays at 6:30. Chris, great talking to you. Talk to you soon.
Chris: My pleasure.