Salena Kulkarni On The Investments That Sit Outside The Mainstream

Residential property can be a great vehicle for investment. If you start young enough and you know how to choose a good asset, the combined power of compounding and leverage will work wonders for you.

But its weakness is that it provides poor cash flow and investors need to be very patient while they're working their day job to fund their investment portfolio. There's also a weakness in how we measure success. Now that's if you stick to the traditional model, of course.

But what is it that sophisticated investors do? Welcome to The Elephant in the Room. This is the podcast where we love to talk about the big things in property that never usually get talked about.

I'm Veronica Morgan, real estate agent, buyer's agent, co-host of Foxtel's Location, Location, Location Australia, and author of Auction Ready. And I'm Chris Bates, mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice.

We always recommend you engage the services of a professional. Don't forget that you can access the transcript for this episode on the website, as well as download our free full forecast report. Which experts can you trust to get it right? The elephant in the room.com.au.

Today, we're delving into a different style of property investing, not your typical residential commercial development models, but alternative investment. Now, sounds a bit risky, I know, but I've been really up on this and I'm curious to learn more.

So I've invited Selina Kulkarni to join me today and explain what is meant by alternative investment. By way of background, Selina has been a chartered accountant for 25 years, a certified property investment advisor and a wealth strategist. And after years of learning, testing and becoming an investor herself...

Selina says that she has uncovered strategies that can be used to drive up investment cash flow by choosing investments that outperform the market and offer measurable return on investment. Now, if you're like me, you might be feeling a tinge of scepticism, but it sounds compelling. So let's see what this is all about.

And thank you so much for joining me today, Selina.

Oh, Veronica, it's great to be here. That was a fantastic open.

So you're not scared by the open. Some people are like, oh my God. No, it's great. Great frame up. So tell me, if you can give us some context here, I'm curious to know, first of all, what is alternative investing?

Yeah, so alternative investments is probably a term that a few people have coined, but it usually just describes investments that sit outside of mainstream. So they're not weird and they're not risky. That's the first thing that conjures up.

But it just means that they work in very inefficient markets and so they're not widely understood, they're not widely known. And so that's why the returns are... so amazing is because there's just fewer people playing in those areas with those strategies.

You used a word there which I thought or term there that I think I just want to pick up on and that is inefficient markets. Yes. So can you explain or elaborate on that, I guess, because it seems and perhaps I've got it wrong.

I think maybe the traditional method of property investing is quite efficient in the sense that there's a lot of players and so everyone, the set rules and everyone just sort of plays to those rules. Is that sort of what you mean by that?

uh no look i mean i think the way that i i sort of i frame it up is that if you think about uh property investing as we understand it and how it's evolved over say the last 30 years it was almost true 30 years ago that if you threw a dart at the map of australia and bought some property there you probably did okay and part of the reason for that was there's there weren't that many people

even thinking about buying investment property. And I think about the opportunities that my parents had and my husband's parents had. They had the opportunity to buy up big time and it just didn't occur to them. And so because of that market inefficiency back then,

it wasn't hard to find the gems and, you know, stack the odds in your favour, whereas what I know to be 100% true is Australians love real estate. Like, it's a national pastime.

And what that means is that a little bit of knowledge makes you dangerous and, you know, there's a lot of interest in building wealth through property. And, you know, if I think even about the 20-plus years that I've been, you know, investing...

Even when I started, it was still sort of a concept on the fringe. A few people were getting interested in it, whereas now pretty much everyone you speak to has an opinion on it, wants to be in it, recognizes that it is the vehicle to lever yourself out of whatever situation you're in.

And so the market has become very efficient. And what that means is you have to work harder or align with someone like you

to find the better opportunities otherwise you're just competing with the masses and people are stepping over each other to find the good deals or paying silly amounts to try and get their foot in the door or buying the wrong properties because the market is so frothy people can't they just and there's too much information it makes it you know harder to get the sort of gains that we've been able to achieve in the past

So I guess the paradox is that the more efficient the market is, the more inefficient it is for the individual participants.

Absolutely. And I think the extension of an efficient market is returns get compressed. I mean, obviously, from a capital gains perspective, anyone who held property in the last...

two years is laughing all the way to the bank right now but you know typically our market you've really got to work hard to find the gems it's not you know it's not like throwing that dart as it was 20 years ago and you know odds were you'd probably do okay now it's much harder

Well, it's funny that, though, because what you talk about – in fact, you've got a podcast too. What is it called?

The Alternative Investor. There you go.

It's easy. So if anyone's interested in this, listen to that. And I was literally listening to your most recent episode, which is talking about the idea or the –

the element of luck in in investment outcomes and the willingness or unwillingness depending on how you come at it to to recognize the element of luck and i think if you talk about the last two years in most uh sort of classes of property in most locations in this country you've done well but there's degrees of well some it's well or very well and you know and

How much are we thinking that we're good because we did it or got into that market or whatever versus, oh, dear, did we buy a good asset? Did we actually do better than average? Did we do worse than average? Could we have done better if we bought 10 years or whatever?

But it masks a lot of poor performance as well. When everything's rising, you don't know what the underperformers are, do you?

No. A hundred percent. I couldn't agree with you more. And I think, you know, I had a couple of people say to me over the last just even few weeks, I've been a very clever investor this last 12 months and they're new to investing and I must have the Midas touch.

I have an ability to choose assets well. And, you know, you never want to be unkind. You always want to be encouraging. But the thought is, well, let's see you do that over a couple of decades and

or, you know, maybe even longer, three or four decades, and then you can start to, you know, say hand on heart that you've got great skills as an investor. I think it's very hard in just a 12-month block to make those sort of claims.

And yet, in the buyer's agency space, we've actually got entrants into the market that make these enormous claims after, and I'm shocked, as little as 12 months in the market saying, aren't I a good buyer's agent? All of my clients have benefited. And I'm like...

everyone's benefited like what doesn't make you special and and how have you anyway we digress so why do you think um i mean look i was going to ask you why do you think most people um into property investing but i think you've already answered that can you give us some examples of alternative investments and then what i'm quite keen to understand is what type of investor and at what point in their investment journey would they look at these types of investments

Yeah, so one of the things, like I'm a property girl, you know, through and through. And so one of the things I loved about alternative property investments as I see them is that they're still backed by real property.

The interesting thing about the, you know, the way that other markets, even the markets outside of Australia operate is

is that if you tap into the right strategies inside of the right networks, what you can do is you can structure property deals so that people like you and me can participate without having to handle, be involved in the day-to-day niggly management of tenants and toilets and all that good stuff.

but also because of that market inefficiency you've got that ability to create you know i call it alpha which is way above average returns so things like um and and these strategies exist in our market it's just that they're harder to find and um often you know people want you to put large sums of money in but they're things like property syndications small private funds

lending deals, joint ventures, and then traditional property. So I kind of always try and talk about the five buckets of strategies. And then within each of those, there's lots of permutations. But the challenge we have in our market is there's only one way to transact property.

Like if I'm selling, you've got to engage a conveyancer and transfer the title. Whereas in a lot of other markets, there's many permutations of how to not only own assets but transfer ownership.

And so what that creates is a very, if you like, creative and entrepreneurial way of structuring deals

And when you can do that, and in markets where the metrics are very different, meaning you're buying assets that are already cash flowing strongly, and then you're making tweaks to those investments or those properties to even improve that cash flow or improve value.

So it means you're not relying on a rising market. It's very immune to volatility. It doesn't matter whether the market goes up, down or sideways, you still get that cash flow. So it's not necessarily that I would advocate that anyone put all of their money into those sorts of strategies.

But what I learned on my own journey is by, you know, it's almost like a minimum effective capital that you've got to be thinking about. If I put 20% of my net worth into those sorts of deals, I can 5X my income. And so that's the sort of thinking.

And in terms of, I think you were asking when is the right time, I think there's no question in my mind you have to, if you want to, you know, create wealth and financial freedom well before retirement age, You've got to build capital. You've got to start there.

And working in traditional property in Australian market is 100% where you should be.

So if you're starting out working with someone like you or working with a buyer's agent or someone who's really educated who can help you stack the odds in your favor so you don't accidentally go out and buy a lemon because property is expensive.

And the last thing you want to do is, it's not that you can't reverse those decisions, but time is the best friend you have as an investor. And it's expensive to get in. It's expensive to get out. So you just don't want to make mistakes.

But that first part of the wealth journey is build capital. Use leverage. Buy high-value assets that are likely to go up over time.

But once you get to the point where you have a portfolio of property and, you know, there's lots of examples I could give, but let's say you've got, you know, a few million bucks in property and now you're like, well, this isn't doing anything for me because there's not much cash flow and you don't necessarily want to eat the cow, meaning you don't want to sell your assets to fund your lifestyle.

That's where alternative can be really great because you could take a tiny percentage of your equity, put it into alternative and then just, you know, it's game over very quickly. And so that's the place for it. It's when you get to that point where you've got some capital to play with.

It's interesting, just I'm thinking while you're saying that, is that quite a lot of people that subscribe to the idea of property investment and want to sort of build portfolios, they do approach it

by saying, right, I've got to buy the first one, and as soon as I've got enough equity, I've got to go and borrow against that to buy the next one and so on.

And certainly before the Banking Royal Commission trimmed down the ready access to cash, that was something that allowed people to, quite unhindered, buy all sorts, and quite often a whole portfolio full of garbage as well.

And it's the numbers gain then that they thought, you know, it's about volume or quantity rather than quality.

And so I guess what you're saying here is that instead of looking at that, where you run the risk of just as soon as I've got just enough equity and I'm impinged by my income anyway, because that obviously puts a constraint on my borrowing capacity,

then I've got just enough to go and buy something. And I see this in forums all the time. It's like, I've got $400,000, where can I buy an investment in this country?

And it's like, the focus is very much on buying something rather than buying something good or buying a good asset or buying actually an investment. So I guess what you're saying is that if you took a 20%, say you took your equity and you actually invested it in an alternative investment opportunity that

That de-risks that borrowing or that extra money to buy a crap asset. But the problem is that you're talking about high yield and typically that's correlated with high risk, right?

So how do you sort of say, well, is this for investors that are sort of earmarked a certain amount of money they're quite happy to lose if it all goes wrong? I mean, how do those two things sit well with each other?

Yeah. Look, I think this is a really interesting space. I had a conversation with someone in the last week who, you know, is with a financial planner who advocates that higher risk and higher reward are correlated.

And I can tell you after having been in this space for a long time, they absolutely do not. I can tell you from my perspective, and I'm talking generalities now, like if you go out and you buy a property, a traditional property as we understand it,

What you are banking on is a rising market. You're not necessarily going to get great cash flow. In fact, probably majority of Australian properties are going to take a little bit of money out of your pocket to support it. So you're not banking on that cash. you are banking on a rising market.

So if there is volatility, if there is uncertainty, if you buy in the wrong place, if you make a poor judgment call, if you get crap tenants, like there's all sorts of variables that can make that strategy a bit wobbly.

And, you know, people like you and me who've had great success as investors, you know, it's taken time, like cuts and bruises to get to the point where we can confidently make those decisions. When I look at alternative strategies, Number one, the dollars per deal are small.

So your capacity to diversify both geographically from a liquidity point of view, from a strategy point of view, from an advisor point of view is enormous. It's totally different. And I'll give you the contrast. A million dollars will buy you, I'm not sure what, in Sydney anymore, maybe a

Not much.

Yeah, not much. And you could buy one asset.

Yeah, one asset for a million bucks or maybe do 15 deals in the alternative space. And so, you know, I'm sort of giving you the contrast. And really what I'm – there's no right or wrong with any of this stuff.

The biggest mistake I see people making is almost what you described before where people

people get told oh you can refinance and go out and borrow to purchase another property and they let it burn a hole in their pocket and I was very guilty of this very early on in my career I just as soon as I had that that little bit of breathing space I'd go out and I'd do it again and I understand especially like I was a fairly low income earner you know when I started investing and you know I saw that property was the pathway to the next level but

i didn't have a plan and i think where i see people making mistakes is they're not they're not buying whether it's alternative or traditional property it's got to be in the context of a plan so it could be that you go well you've got a reasonably good income and so maybe you work out that the banks are really going to let you buy somewhere between two and five properties and then they're going to say enough you can't you can't do it anymore

So maybe you go through the motions of putting that capital base in place and then you start looking at alternative at that point.

But I feel like, yeah, there's definitely in the context of a plan, that makes so much more sense to me than just as soon as you've built a little bit of equity, going to the bank and saying, what next? Unless you're in that situation where you have to do that.

So if you're someone who doesn't earn a great income and Maybe you do have to be a little more aggressive in your stance, but it's not what I would say the average investor needs to do.

It's interesting you say that about the sort of someone who maybe have a lesser earning capacity or income, because one of the perhaps unexpected side effects of responsible lending is that the opportunity for successful property investment, and I mean being able to buy a quality asset, is now something for those who already have a good income.

And, you know, I did a workshop for Homebuyer Academy only last week, which is the Where to Buy for Investors workshop. And we did that using data from Kent Lardner, who's sort of our data geek on this podcast. He came along and explained a whole bunch of stuff.

And he was talking about a report that he's recently done. looking for where the opportunities were with a $500,000 budget in the country.

And he said, I started, I mean, I'm paraphrasing here, but basically he didn't start really thinking there was going to be almost nowhere, but then it was pretty clear that it was almost nowhere as a good solid place to invest, right?

So I guess the question for you is, does alternative investing offer anything for those who mistakenly think that the volume of properties they own will actually be their path to fortune?

Yeah, look, there's so much goal. I reckon we should have another chat about this as another podcast. But the reality is exactly what you said. Like it's getting tougher. The prices are exorbitant and it's getting tougher to break into the property market, no question.

But what I also believe is, and I had a client, a young girl who was getting into the workforce, reasonably good income, but, you know, starting from scratch. And it's a tough gig for young people.

And basically where we got to in terms of, you know, the sort of options I gave her is I said you could go out and scrape into a regional property, a unit or something like that. Or...

You can just wait, give yourself another 18 months, get a healthier deposit behind you and go out and buy, in my mind, a quality property. Still in a regional area, but in a high growth regional area.

And she did exactly that and she's followed it to the T and now she's in a situation where she's had fantastic results over the last two, three years.

And I've seen refugees come to Australia who start from zero and they go out and they get themselves three jobs and they work like a dog for two years and they get their foot in the door on a property in an area they feel comfortable with and then they just keep working at it.

So I think income is not a limit. I've witnessed that income is not a limiting factor. Youth is not a limiting factor. It's... It's really about aligning with people who will help you make good decisions. So you're quite right. It is really hard to find anything under $500,000 now.

But even if you're starting from ground zero, if you just do the hard yards and, you know, investing is one of those games, I feel, and it is a game. There's no right or wrong and it's never wrong to spend money on your lifestyle.

But I just think if people invested a little more energy into stewardship and meaning the care of the money that they do earn, I think it would just put them on another playing field. I don't know if that answered that question or not.

It's more, I guess it's a little bit philosophical, isn't it, around the structural inequities that is really building in this country, I think. Yeah. It is rough.

And there is a mindset and an approach that will make, I guess, will encourage one person to really just pull up their socks and say, that's it, we're going to just go for it.

And others that say, bugger, it's too hard, I'm just going to go and spend my money and have a great life. for the short term anyway. So we're talking about long-term freedom, I guess, and freedom to do more than just go on holidays whenever you feel like it.

So back to the, you know, the alternative investing as a concept and as in action, right? So can I... can I ask you to give us a case study?

Can you give us an example of, you know, I guess you're a model client or, I mean, you run a sort of a mastermind group, don't you? Yeah, yeah.

Look, I can definitely give you some examples of,

One of the things that I need with people that I work with is I say, okay, you bring half a million, say half a million dollars to the table, but if that's all you've got in the whole world, then this is the wrong place for you anyway.

But let's just talk about a person who's got half a million dollars. Maybe they've got anywhere from three to seven investment properties that are just okay. Maybe they're draining them a little bit of cash flow and they've got good equity and now they're saying, well, like what else? What could I do?

where alternative comes in and this is where you know there's there's a bit of planning and sort of forecasting involved is just to really try and understand what that person's goals are like what do they actually want to achieve um for a lot of the guys that i work with who run businesses they run great businesses but they either don't know whether or not they can sell or

Or they don't want to sell. They quite like running their businesses. And they see this idea of investing as really an insurance policy or a plan B. And it's a fantastic plan B, but they also recognize the vulnerability of carrying these

big assets that maybe if they weren't around tomorrow would have to be sold down and one of the topics that I talk a lot about is the developing of intergenerational wealth and why we're not getting wealthier and how to create investment family charters and things like that but

You know, for the average person that comes to me, taking a small percentage, and it could be as little as 10% or maybe up to 30, 40, and it's really about going through someone's, you know, what they need and what they want and then reverse engineering.

But, you know, they could, you know, education is first and foremost. They need to understand what they're investing in because that's always the number one rule.

But once they get confident enough to do deals, you know, and they deploy that capital over a period of, say, 12 months, they can put themselves in a situation where they've more than doubled or sometimes even 5X'd their passive income.

And the exposure as a percentage of their overall net worth is quite small.

And just to give you an example maybe from someone who's starting from ground zero is

If you had half a million dollars, $500,000 to invest, and you put it all in on traditional Australian property, over a period of 10 years, you'd actually, you know, depending on the growth, but if you assumed a 5% growth rate, you would end up in a situation where maybe you'd created, I'm going to say, 1.2%

in equity from that $5 million that you brought, that you invested and got leverage. And so you put in 20%, you borrow at 80% and you kind of just let it roll for 10 years. And so that's quite a good income.

But even if you assumed a very optimistic 2% cash flow on that property, and maybe that's not realistic, but you're not talking about a lot of income. I mean, not life-changing income over that period of time. No.

And the other end of the spectrum, because I want to kind of describe it as a spectrum, is if you took that $500,000 and put it into all-in-one alternative and let's say you went into a bunch of deals that were going to average a 10% return, by the end of 10 years, if you'd allowed it to just reinvest every year, you just put your money back in and you didn't need it for that 10-year block, at the end of 10 years, that would be throwing off about $122,000.

So I guess what I'm saying is that there's a spectrum, right, of extremes.

So if you had, and I'm going to use a big number here, if you had $10 million worth of net assets and you had that all in on traditional property, maybe if that was earning you 2%, you might have a couple of hundred thousand dollars worth of income coming off it.

And at the other end of the spectrum, if you had it all in on alternative, at 10% to 12% net returns, that would be almost a million bucks. So that's a huge difference. So part of the journey is just working out, well, where on that spectrum do I feel comfortable?

And again, I'm really big into no judgment. It's a journey of working out what sits well with you.

I'm curious, though, because there's two elements of property investing, and it's quite interesting how you talk to different parties. They're either the capital growth camp, which I'm definitely in the capital growth camp, But I recognise that towards retirement, that's all well and good. It's got to actually fund your retirement.

And then there's the pure yield camp, and then there's a continuum along the middle, I guess. And a lot of what I talk about is that the focus on capital growth depends very much on the stage of life you're at. We talk about asset accumulation phase, which is what you...

You were talking about before, if you're early on, you really need to get that capital base behind you. And then you've got sort of a consolidation phase. You might ease off, take your foot off the gas in terms of your actual earning.

And there's a level of changeover from negative gear towards cash flow neutral and positive. And then through to retirement, right? Yeah. Now, anyone who's going to buy a property in the cusp of retirement is, you know, unless they've got loads of cash, you know, then why would you do it?

Because you basically, that's not the point where it's going to suddenly generate this income for you.

And so I guess in your sort of scenarios at two ends of the continuum, if you've got high capital growth but you don't necessarily have any income coming from that, but you've got the alternative investing where potentially you've got much high income coming from it, but what happens to the capital?

Is the capital still worth the same after 10 years? Yes.

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Yes, this is really great. I love the questions you're asking. I was going to say, I think everything you say, I completely agree with. I use a slightly different metaphor. I say there's three parts to the wealth game. The first part is you've got to build capital. There's just no question.

You have to do that. But sooner than people think, it's not just before retirement age. It can happen much sooner. If you look at the capital you have, And, you know, I'm a huge fan of having your cake and eating it too.

What if you could keep your entire portfolio of property and just use a little bit of equity from it and part two of the wealth game, as I see it, is to change the trajectory of the cash flow.

it's not about liquidating assets and moving them to somewhere else which unfortunately is what happens with shares if you want if you want out of shares you've got to sell them if you're already a property investor and you've been clever enough to build a a good net worth behind you of working capital just take a small fraction of it part two of the game is change the trajectory of your cash flow part three of the game which is as you kind of go well i'm ready to kind of

you know either take a step back or work less or you know travel the world whatever it is that you want to do is about building annuities and yes you can build annuities if you've had the luxury of holding property for a really long time but

My experience is that you need to hold a ton of property, ton, like 10 mil plus to make any kind of meaningful cash flow.

And that's the problem that if you've done all the right things and you've built a portfolio of property here and now you're like, I can't see. And that was the problem I had. I looked at all the property we had. We had a huge property portfolio in 2009.

And then I was like, if I did the math on where I was, I was at least 25 years away from developing the cash flow that I needed. And I'd pushed pretty hard. So I was like, well, what am I doing wrong? And that was when I started to explore other options.

And I don't have to take on more risk. I don't have to sell my assets. It's all about just shuffling the deck chairs, isn't it? It's just, how do I get to where I want to go while feeling safe and confident and without risking my capital growth in the future.

So what was the first thing you did then?

Oh man, I lost my shirt a few times.

Wherever there's opportunity, there's always sharks. Yeah. Oh yeah. The real, if I was going to tell you what the one ingredient is that's probably made the single biggest difference to me, it's ratcheting up into the right networks. And what I feel I've learned over the last probably 10 years

is who you know and what doors they open for you matter more than being a clever investor and knowing what to do. It's just a different way of thinking. We sort of need a good bullshit meter as well.

I am. A lot of people talk about the successes and particularly in the investment space. It is very, very heavily weighted towards how good am I? How good am I? How good am I?

And I, you know, particularly on the Your First Home Buyer Guide podcast, Megan and I share our failures all the time because we want people to learn from them. And we also want to demonstrate how we've learned from them. So I'm really keen.

You said you lost your shirt a couple of times and obviously you've had some successes. I would love it if you would tell us a story of when you lost your shirt and a story of a success so we sort of have a bit of balance here. Will you do that? Yeah.

I'll share my best shirt loss story but I don't even think people in my family know about this. Hopefully they don't listen to your podcast. I won't tell them. Yeah. So I'm going to say 2007, I started to get really interested in development and have since done a lot of developments.

But the very first development that I went out to do, I basically got swindled. So we were going to do it as a joint venture with someone. We had lawyers check it over and we had all the right agreements put in place and he basically fleeced us.

and we had just paid off our home and we pulled all the equity out of our home to do this first development and you know it stacked up and we did all the due diligence on the deal itself but there was no accounting for the fact that the guy that we partnered with was just a crook and he just took the money and ran and so basically we lost our house oh and that's pretty um yeah it was pretty full-on and

How are you not protected though? I'm curious because like you said, you know, you got the lawyers and you had the right deal, the right wording, the right contracts. How did it happen that you ended up suffering in that way?

Well, the interesting thing about contracts is they're only as useful to you and, you know, worthwhile if you pursue them. And at that point, we were told, ASIC said, small fry, can't help you, it's too small.

Police said it's not our issue. Lawyers said you're going to have to spend potentially a few hundred thousand dollars to chase that money in law fees. And we just looked at it and on balance just said, well, we just don't have the bandwidth or capacity.

uh you know from i guess from a yogic perspective i was kind of like going well hopefully karma catches up with that person and and deals with them but i think the decision that my husband and i made was you know it was it was awful it was really like you know any loss at any time is always hard to digest and one of the things that i feel really good about now is my capacity to to digest and that was a really tough one because we we basically had to dust ourselves off

and not so much start over because we still had a property portfolio behind us, but it really hurt.

It happened at a time where we were just, I mean, we never had great incomes and we'd done really well for the incomes that we had, but to kind of bear that loss at that point, it was sort of the crossroads of we had two babies and my husband was starting his business and, you know, there was a lot of things in flux and it took...

a while to digest that and see the learnings for what they were and actually not so much celebrate the loss, but just get to a point where, you know, I recognise now that, you know, every financial loss is, you know, you can overcome it and come back. That is interesting.

Before we get into your success story, because...

I imagine it is a bit of the Wild West. You talk about the inefficient and inefficient markets.

And I guess one thing about the more traditional way of buying and selling property or holding property is that it is a lot more established in terms of its structures and its contracts and its expectations and the players and all that sort of thing.

And I know myself, I've been in situations where sometimes I have sued people and never successfully, I have to say. And that's not to say I was not necessarily in the right or the wrong, depending on how you judge right and wrong.

It's to do with exactly what you're saying is that, yes, it's fine to have a contract, but then to enforce it is another whole level of investment, not just in money, but in time and energy and negativity, positive, whatever. And so I've pulled the pin.

Like, you know, I've never taken anything right to the wire because I've realized that, you know, I can rant and rave all I like, but I've got to get on with my life.

So that is rather interesting. And that's been a very tough lesson for you, losing your home. Okay. And do the quality of your net worth protect you from that? Is that enough?

Oh, look, you know, with any investing there's no guarantees but, you know, part of being a really good investor and you use the word sophisticated investor, as you grow in terms of your knowledge and wisdom around investing, the other thing that happens automatically is you start to cultivate investing rules.

And I'm crystal clear on my rules and part of what I'm trying to teach other people about is how to build their own set of rules. Like what are their not negotiables?

And so you're quite right, you know, there's no, you know, if there was a silver bullet and a sure thing, everyone would be on it. But what I do know now is I know how to quantify and measure my downside protection. I know how to ask the right questions.

And I'm a huge advocate of asking the nasty pointy questions up front when you start working with someone because it's better that you get those off your chest early. And there's so many things that people can do to mitigate risk, but they just don't.

Well, possibly they don't even know that there is a risk, though. That's the problem, isn't it?

Yeah. I mean, you know, the best example of this is you go to someone who wears a nice suit and has a nice office and claims that they're a wealth advisor. And you think by handing your money to them that your money's safe. Mm-hmm.

But I have counseled and coached so many people who've just basically added another 20 years of working life to their lives because they put their money in the wrong person's hands. So there's no guarantees, but you've got to do things. You've got to talk to past clients.

You've got to look at track record. You've got to look at transparency of reporting. You've got to look at are they prepared to have external audits? Who's the watchdog? These sorts of things. And so with all of the guys that I invest with now in the alternate space...

open books, external auditors, independent accounting firms, legals are airtight, track record. I can speak to, you know, a number of raving fans who've invested with them over 20 years. Like there's lots of pieces of the puzzle.

It's not, I don't ever, and that's why I tell people who come in, like they can cherry pick from a, you know, a buffet of vetted deal flow or curated deal flow. But I say, you've got to layer your own

investing rules over the top don't take my word for it you know do you like and and i help them understand how to work out what their rules need to be but yeah i mean it doesn't matter whether you're buying a piece of art as a collector or an investment property or an alternative investment the the rules should more or less be the same

It is interesting you talk about the rules and also the fact that, yes, there are, you know, you learn from someone with the experience and that talking to past clients is a classic too because you can talk to anybody who bought a property through, and I'll just talk about buyer's agents for a moment, through a buyer's agent in the last year or two and they'll say, oh, yeah, they're great.

Yeah. And part of that greatness will be around the fact that they actually bought something because, you know, they've recognised how difficult it is to actually buy in a hot market, let alone, well, was it a good asset? Was it the best possible asset you could buy?

And can I talk to you again in 10 years? And so that longevity is very important. And even in a different way in when you're talking, you know, when buyers are looking to buy into businesses

brand new apartment building you know it's one of the problems with those sorts of purchases is the fact that there's no longevity to go to unless you've got transparency in terms of developer and builder and yeah long long history etc etc so you're basically applying those same those same frameworks or certain principles into this space

Can you now tell us an example, I guess, of how a successful alternative investing exercise went?

Well, one of the things I love about Alternative the way that I do it is I never have to go looking for deals and I never have to chase deals.

So what that allows me to do is let's say this quarter I have $50,000 that I've freed up somehow or I've earned or it's just I've got $50,000. And I'm already thinking, okay, well, I'm going to deploy that in the next, I tend to think in quarterly cadence.

So I'm always thinking this quarter, what am I going to do next quarter? And then it might just involve me having a conversation with a couple of people.

But the most recent one I did was I went into a syndication and basically it's with someone and, you know, one of my rules is my trusted advisors have to have been through multiple property cycles. And I've been doing it in one strategy and one niche for that period of time.

It's such a good point.

Yeah. But on YouTube at the moment, I've just been checking out some of these sort of property gurus and it's like, you know, you get the benefit of my seven years experience. You know, that's the one that just made me laugh the hardest. It's like, what?

you haven't even been through an entire cycle yeah yeah but look the the 50k the most recent one that i did was a uh property syndicate where they bought a block of 16 townhouses and i put in my 50 and the like there's a fairly um long disclosure document with all the numbers and the plan and what they're going to do and how it's going to be managed and these guys have a long track record

they have the issue that if you don't get in fast enough, you miss, you miss out. Like they'll put out an offer and it'll be filled in 24 hours. And I say this all the time, there's more capital out there looking for a home.

then there are good homes in terms of investment opportunities. But this particular deal, how it's structured is I'm going to get 8% per annum cash flow from day one. And there's another 8% cash capital that will come at the end of the 30 months. So it's a 30 month project.

So that's a rough 16% per annum for about two and a half to three years. And so I look at that and I go, well, it's not terribly exciting.

I mean, I don't know, they're the sorts of, but you put a lot of those little deals together and suddenly you've got this, you know, amazing high performance portfolio and you're in deals with people you know, like and trust and you just see the money tipping into the account and then the deal finishes and then they go, oh, we might have one next month or do you want to do another one?

And so I like that idea that, You know, I'm not on the, like that whole thing, and I used to suffer this when I was younger. If I had money, it used to burn a hole in my pocket.

Like I kept going, oh, I've got to get it parked somewhere or do something with it, whereas now I don't need to do that so much.

A couple of things that sort of come to my mind when you're talking there. One is that sort of the Warren Buffett thing about always having a lot of cash, you know, on hand.

And I know in the most recent market turn down in Sydney, 2017 to 2019, at that point of time, I was hugely asset heavy and cash flow was a bit tight for a period of time there. And I remember thinking to myself, first time ever that I've suddenly valued cash.

And I went, that's interesting. Now I get it. And this is one of the importance for needing people to have gone through those cycles so that they can actually experience these sorts of things.

But the other thing was that – so you've got a plan, but the plan doesn't mean – I'm presuming it's not prescriptive. I have to every quarter tip in X amount of dollars. No, no, no. Because that's the challenge with the plan, isn't it? A lot of people say, right, well, that's it.

On X date, I'm going to make this investment. And particularly with property plans, it's like the first one I'm going to make is going to be this, and then the next one is going to be cash flow positive because I'm going to need the borrowing and da-da-da-da-da, and it's like –

You can buy a whole bunch of crap assets doing that. So, yeah, that patience and that ability to sit back and not spend the money or not invest the money, is that just the wise head on your shoulders? I don't know.

Oh, well, school of hard knocks as well.

Yeah, look, I definitely recognise that, you know, my style is not a fit for everyone and maybe yours style is not a fit for everyone as well. It's definitely not, don't worry.

I think if I were to have made inroads in terms of finding better mentors and guides earlier in the piece, I probably would have been twice where I am now.

I really only saw the value in the who and the, you know, that building of a board of advisors probably in the last 10 years. And that's when my results really started to become exponential.

But yeah, I see that, you know, a defensive game is a great game to play at times. And then sometimes a more offensive game is,

useful as well so there's again there's no right or wrong it's just there's opportunity cost there's preference and a plan as i see it is an organic document it it's something that you keep playing with and evolving i think the the real trick though

is to put a stake in the ground about what is it you want.

And that's the part that people have a lot of trouble with is, you know, and it's not a flowery description of, well, I want to play golf twice a week and I want to be able to have a massage on Tuesdays. It's not that kind of goals.

It's like I need X amount of income. to sustain my lifestyle. I need to be mortgage free. I need my children to be financially independent. Like they're those kinds of goals. And then so they're very concrete.

And it might be like I always say define financial freedom as an A plus B plus C. Like it's three things, you know, three criteria at the most. And then if you can do that, then reverse engineering is very easy.

And you change, you know, life happens and then, okay, well, I don't have that capital that I thought I'd have this quarter or I just, I guess the quarterly cadence part is more around thinking, you know, about what you can do every quarter to move the needle.

That's probably a better way of saying it.

Yeah, okay. So it is an active strategy, obviously, because there's short periods of time by the sounds of it and a lot of these opportunities. Am I putting words in your mouth?

Oh, no, look, so not necessarily. So that was just an example of a shorter-term deal. And for people who like to keep a little bit of capital in assets that are very liquid, you know, those sorts of deals make sense, but you could go into deals that are evergreen

and just keep going forever. You can go into deals where there's an option to reinvest. You can go into deals where it's just pure cash flow. There's so many permutations that that's what makes it a really fun space.

And so part of the plan part is around going, well, what do you want? What are the strategies that align with that?

then who are the deal makers or which kinds of opportunities are going to get you where you want to go and then focus in on those, not try and be everything to everyone and learn everything. It's about being just in time.

So in terms of whether it's an active or passive strategy, I'd say it's more passive. It's like armchair investing. You don't have to do anything. Yeah.

Now, are you finding that there's some deals, is there any change in the type of deals coming across your desk? I mean, and one thing I'm wondering whether you're seeing more in the build to rent space, is there any, are you seeing any of that?

Yeah. Yeah, in Australia. Yeah, look, I know that affordable housing is a massive issue and I am hearing about governments starting to earmark capital and programs for the build-to-rent type stuff and more, you know,

government housing and NDIS and all that good stuff. But my observation of those strategies and tactics is that usually someone in the middle will absorb the bulk of the profit. so builders will make more money.

And it doesn't necessarily make it to the end user, it doesn't get passed on to the end user as a benefit. So it'll be interesting to see whether they put some, I don't know, speed humps in the way to make sure that the people for whom that benefit is intended actually receive it.

And what about sort of co-living? Have you seen – it's interesting because before COVID, I was starting to think, you know, particularly in our really expensive built-up urban hubs, I was starting to see more of this co-living type property being developed.

And I think COVID may have put a bit of a dampener with all our lockdowns and lack of being able to have the true communal sort of living.

Is that something that you're starting to see more activity in or is it still more a traditional development or redevelopment?

Well, it's an interesting idea, but there's no question, you know, and if you look at the data, I think the evidence is there that COVID put the wind up a lot of people who were living in close proximity to other people. And so a big driver of growth over the last,

18 months has been people's burning desire to not only work where they want to work, but get away from space. Yeah. So I think I read something in the last few weeks from one of the data houses saying that the

The average capital growth in houses was double that of units, you know, more or less. And that doesn't surprise me. So, you know, who knows? It's a bit like will cruises come back?

You know, some people are going to be really comfortable going back to cruises and I'm sure they'll be very cheap. But whether or not, you know, people feel comfortable doing it is a touchy subject.

A lot of us have short memories.

Yeah, true.

Do you have a property Dumbo for us, Selina? No.

Property Dumbo. So it's a story that we can all learn from. It might be about yourself. It might be about somebody that you know. And we're not judging the people that we talk about here.

What we're doing is basically looking at circumstances where often we as fallible human beings make mistakes that we could avoid if we only knew a bit of what we don't know.

Yeah, there's so many, but I'll share one of my own just so that I don't put anyone else in the spotlight.

I remember years ago, and this is right at the beginning of my investing journey, we engaged a buyer's agent who had virtually no experience who helped us into buying two houses in mining towns.

And, you know, I'm fairly conservative now so I probably wouldn't do that ever again.

But one of the houses that we bought, and I don't know how this happened, but ended up that there was a bat plague that sort of descended on the town and, no, we couldn't rent the house out for zero because no one wanted to be in this town because of this bat plague.

Who would have thought of that? Yeah.

So, you know, I'm fairly cautious around investments that are in those mining towns in general now. But, yeah, who would have, that was the dumbest thing ever. I mean, like, I probably could have done a bit of research and figured that out.

The bats were starting to come into town and put two and two together, but that was a pretty dumb thing I think I did.

Who would ever have imagined a bat plague, though? I mean, you know, the whole mining town thing. I mean, hindsight is a wonderful teacher. You know, we all look back now and go, oh, yeah, mining towns have only got one source of income.

The only reason people live there is if they live in the mine. And what if they shut the mine down? And, you know, $1,000 per week rent on a $300,000 investment. Oh, why is that? You know, I mean, we're all wiser now.

Did you get out of those two investments?

Yeah, so I've over time had four properties in regional areas that were reliant on mining. And I managed to get out of all four of them with a very healthy profit. But it was almost like as soon as we got in them, I knew something didn't feel right.

So the bat plague was maybe an extreme experience.

Maybe that wouldn't happen very often but I remember one of them was in Moranba and I don't know if you remember but Moranba, I mean we bought that property for $170,000 so it wasn't a whole lot of money and we sold it for about $420,000.

And the market continued to rise. And just before the crash, they were as high as in the 700s. And everyone just said, oh, you're an idiot for selling out. But I just intuitively, as my wisdom around investing grew, I just kept going, no, there's too much exposure. I don't like it.

And so we got out and we did okay. So I'm not that fussed about it, but I still think it was a dumb move.

That's so interesting, though, because I've looked at some of those charts, those properties that, yeah, median price at the beginning of the boom, down around sort of $120,000, peaked $7,000, $8,000, $9,000 in some places.

I don't even know how you say it, but that was one of the poster children of the places you could lose the most money. And then went down to, some of them went down to under what they were, less than what they were at the beginning of the boom. Oh, no, it's horrific.

I've coached so many people over the last decade who are still carrying property with massive negative equity in it and they don't want to take the loss. So it's a terrible situation.

They're just continuing to hold on with the hope that maybe things will improve or they just feel like they can't afford to take the loss. So it's a terrible, terrible situation. Yeah.

Yeah, loss aversion is a powerful, powerful behavioral bias. And, you know, at the end of the day, what is it costing them? Like, forget the fact that if they sold out, it would, you know, they owe more money than the properties are worth.

But, you know, what else could they be doing with that borrowing capacity or just that freedom?

Yep. Sunk cost fallacy, I think, isn't it? Like, just...

I'm too far in. Yeah, that's it. Yeah, there's lots of them.

I mean, and if anyone's interested in these behavioural biases, go back to our very first episode and we interviewed Simon Russell, a behavioural scientist, who went to an auction and first ever auction that he went to and came away and said, oh my

There's like 12 different fallacies that are in play, you know, the auction process, the actual way the auctioneer talks and all of those things.

And it's actually the genesis of The Elephant in the Room as a podcast was the idea of understanding, you know, what is driving us, the unconscious things that drive us. Selina, it's been a very, very interesting chat and I really do appreciate your time.

And you're, I guess, explaining to us what alternative investing is and where it might fit in some people's investment journey.

Look, we'll put some links in the show notes, but I know you've written a book on this and you've also got some various resources on your website. Also, we'll pop the link in the show notes. Is there sort of any lasting thing that you'd want to

leave or any lasting message you'd like to leave for our listeners hmm i think um hindsight is where we figure out whether we've made good or bad decisions and i think we've talked a lot about um you know making mistakes and i think your capacity to just if you've made a mistake just pick yourself up and

and just put it down to learning and keep moving forward is really important. And I think having compassion for yourself as an investor on the journey is really important. Everyone wants to talk tactics and show me the deals and things like that, but I think

such a huge part of the wealth journey is about getting your head straight. And I believe your results are a function of, yes, the actions you take, but I think your thoughts and beliefs are probably equally as, if not more important.

So I think that's something to just keep working on and sharpening the tool and noticing the blind spots.

Very wise words and absolutely agree with that as well. Thank you, Selena. Pleasure. If you're looking to buy your dream home or an investment property in Sydney's inner west, eastern suburbs or north shore, my team and I can help you buy without regrets. Reach out via my website, gooddeeds.com.au.

If you're looking to buy your first home, thinking of upgrading into a new one or purchasing an investment property anywhere in Australia, my team would love to carefully guide you on this journey. And most importantly, get the finance right. reach out via our website, wealthful.com.au. Thanks for joining us.

We'd love to see you again. And remember, don't be a dumbo.