We’ll follow along his property investment journey and explore his worst experience - being in a vicious cycle of negative gearing. We will also hear about his best experience - sitting in a positive cash flow seminar, which he now attributes to his success. As well as this, we’ll delve into HI-RES, the strategy that Ugarte used to build his own portfolio. Discover Ugarte’s ‘why’ for property investment, the passion behind it and much more on this episode of Property Investory!

Timestamps:
1:10 | A Day in the Life
2:15 | Running Towards Success
5:45 | Growing Up
6:51 | Following His Father’s Footsteps
8:20 | Life’s Ups and Downs
16:05 | Taking the Plunge
24:54 | Life Changing Moments
35:20 | Keep Pushing
41:15 | Finding Your Niche
48:07 | Passion Behind Projects
54:53 | Educate Yourself

Resources and Links:
Running to America Broadcast
Learning hub
Small is the New Big
Future Housing Taskforce
Indigenous Marathon Foundation
TAFE NSW
World Skills Australia
High Income Real Estate
 
Transcript:
Ian Ugarte:

[16:46] (This is from file Ian-Ugarte-02-Ian.WAV, I’m not sure what to do when there is more than one audio file)

 So for me, that turning point was, what am I, What am I doing here? You know, what, what, what is my why? What, what can I really take effect of? And what, what can I make a difference in this world about? And all of a sudden, I started to look at the housing options that we were putting out on the market.

 

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this episode we’re speaking with Ian Ugarte, a former tradesman who has found success in property investment. He shares the stories of his life changing moments, the value of being one of only twelve members of the Future Housing Taskforce and his passion behind creating more functional living spaces within the one home.

As you can imagine, Ugarte has a busy life. So for him, sticking to a daily routine is key.

 

[1:38] I actually get up about four o'clock in the morning. I'll answer emails for about 45 minutes. I will do a jog somewhere between seven to 36k, depending on what my training is for a marathon. Come back, have a shower, get the kids to school, drive them to school. I'm one of those fathers that drops kids off. And then, I'm in the office for two, three hours at tops. And then the rest of the day, I take it pretty easy. So we've got an office there that is full of staff that look after what we do.

 

[2:20] I'm not a late sleeper. So I normally will try to get in bed by 8.30 when the kids go to bed. Obviously, there's times where we've got certain projects under way or, you know, webinars that I've got to run or teach some people doing some things and I might get to bed at 11.30, 12.30. I can, I can survive on four hours sleep for probably a month and then I'll need to do you know, what we call sleep bank and get back into the groove of just that running. So I do, I do love my running and I do love my exercise. I don't love it while I'm exercising but jeez, I like the finish line when I'm done.

 

Running up to 36 kilometres every morning is not something that you just jump into. For Ugarte, striving to support the Australian Indigenous community led him to discovering a new hobby.

 

[4:00] It's an interesting thing, because I was, you know, really early on, when we, when we changed the way we were doing property and actually started to get to the point of what we would refer to as success. That was probably in about 2009, 2010. And I've never really run more than 10 kilometers at any one time. And I'm sitting there in a lounge room and Robert De Castella was being interviewed and he just started what they call the Indigenous Marathon Project. And what he does is he goes into remote Aboriginal communities. He does the Deadly Deadly Run Series, which is you know, they take 5k runs, and then from that people apply to become part of the Indigenous Marathon Project. Over six months, they train them up to become marathon runners, and they end up going over to New York and completing the marathon.

 

[4:53] Now, for me, I listened to that story and I watched if you ever seen I think it's called running to America to, to it's on the ABC. It's an overseas documentary, and every person that's gone over since 2010, it's usually a team of somewhere between seven to 15 people, and has completed the marathon. And from that, what happens is, their promoting the locals in the community that can actually show, now they don't have to be fit and healthiest people, they have to be leaders in the community that will be seen to be leaders and they go off and they do the marathon. They comeback, and they are absolute rock stars and the change of health in, in you know there's a huge amount of diabetes problems in, in our remote community at the moment huge. Cathy Freeman, for those people that didn't know, after winning the gold in Sydney, had actually got into a place of type two diabetes. And she, she went over in 2012 to complete the marathon and that was obviously the year that New York got called off. That was going to be my first marathon. And I got to run around because I was supporting the Indigenous Marathon Project as a charity. I got to run around Central Park in New York with Cathy Freeman and Robert De Castilla and, and people say to me, did you get a photo? I go, I don't need a photo. Look until I get Alzheimer's, I'm going to remember that day for a long time. And so that's a long story but that's how I got into running, I heard it on the radio.

 

Ugarte has found success in various aspects of his life. After completing his first marathon, running was no exception.

[2:59] I've done currently nine marathons. I did my first at the age of 39. I am one of only 1000 people in the world that have completed the six world major marathons, which includes New York, Chicago, Tokyo, London, Boston, and New York, there are second York, there's another one in there. There's six of them in total. I've now done that. I'm actually going off and now doing the six continents, and so, sorry, the seven continents, and now I'm on to, I've got three more continents left. I'm doing Antarctica in March. In late next year, I will also do South America. And I've got to fit in an African, in which the African will be my finale. I think which will be doing six marathons over seven days across the Moroccan desert. It's one of the hardest marathons in the world, obviously, because you're doing six of them. And then I'm looking forward to that one.

 

Going back in time, let’s take a look at the childhood that influenced Ugarte to be as hardworking and driven as he is today.

[6:37] I grew up in Sydney and Eastern Southern Sydney, in you know, suburb next to Mascot called Eastlakes. And, you know, I don't have one of those childhoods where I can say that, you know, it was, it was a really bad childhood and you know, that I had to come from adversity. I came from a good middle class family. You know, my parents are Spanish immigrants. Came to Australia in the 1970. I was born in 71, I was born in 73. And, you know, my dad became the first Australian qualified plumber, that was a migrant. So he actually went through the TAFE courses. The first person and, and he had a good head, set of skill sets from being a boiler maker in Spain. And so we grew up quite happily in the family as plumbers. My brother, I have an older brother, who's nine years older than me and my younger sister, who's seven years younger. And so there was a fair distance between my sister and my brother. And my brother, when he got to age became a plumber as well.

 

After finishing high school, Ugarte carried on the family tradition and set out to become a plumber.

 

[7:35] When I got to the age of leaving school, I went to year 12, my dad said, I said to my dad, ‘do you mind if I become a plumber, because I don't really want to go to university’. And my dad says, ‘well, as long as you finish year 12, I'm quite happy for you to become a plumber and I don't, that's not what I want you to do but, you know, if that's what you want to do, that's fine’. And I didn't really, you know, I just thought to myself, well, this is what I'm, you know, it's a good way to be able to do something in the meantime, to have a job. And so essentially, we we work together as a family, we live together as a family and we also socialise together as a family. And, and my first property investment was at the age of 19 and I was earning $222 a week in hand after tax. And my parents, as a technical as you know, an ethnic family, my parents put a deposit down on the house across the road. And ultimately, it was both, it was meant for me to move into with my then, first long-term girlfriend. And so, I lived at home, I worked with the business, I didn't get paid any overtime whatsoever. But my parents did put a deposit on a house for me and that was costing, we were putting at the time, and this was 1992 I think it was, we were putting, I was putting $200 of my $222 of wage into that property. And I still managed by the end of the year to save $800. So I was, I was a handy little saver when it came to it.

 

 

Whilst Ugarte was putting everything into his first investment, his relationship took a toll. At the time, he was heartbroken but he didn’t know this would soon change…

 

[8:58] Now, the main problem was that it was obviously the long term girlfriend who was a little bit materialistic, didn't like the fact that I wasn't spending any money on her, so she left and broke my heart. And so growing up in eastern suburbs was great. And we you know, I then ventured out and, you know, we could say my wife laughed that I, that I got hurt, that she got me on a rebound. And so I met Christine soon after, probably about six or nine months after the girlfriend did leave me. I was probably 21 years old at the time and you know, Christine was a completely different woman. She was older too. So she's technically a cougar, five and a half years older than me.

Investing in property is a big decision for any couple. When Ugarte and his wife decided to take the leap together, they embarked on an unexpected adventure.

[9:47] I always wanted waterfront property and when it comes to waterfront property in Sydney at the time, when I wanted to buy close to water, at least water views, it was going to cost me 500 to $550,000. And that was around the Maroubra area and we think back at those times at $550,000. I would have mortgaged about 10 of them if we knew what Sydney was going to do. Because you know, devise something in Maroubra similar currently nowadays, I'd probably have to spend three, three and a half million dollars. But we took a, we took a trip one day, up the coast, towards Central Coast, and we stopped at a place called Berowra Waters. We went into the, into the shop by the wharf, and we looked in their shop and a house for sale for $230,000 and we went jeez, that's cheap. That's waterfront property for $230,000, an hour away from Sydney, this has got to be something that we're gonna look at.

 

[10:38] So, within a couple of weeks, we'd actually moved into a property that was for sale. So, it was my first negotiation in property really, and all the deals that Christina and I have, I can honestly say, hand on my heart, that 100% of all the property deals we've done have never been a standard contract deal. We've never had a standard six week contract or a standard term, because we've always had some sort of condition in it. Now this particular property, we had agreed to look at and purchase, as long as we could rent it for three months to make sure that we could handle the area. Berowra Waters, for those of you don't know, is a boat access property. So that means you have park your car, get into your own personal boat, there's about a seven or eight minute trip up the river to get to your pontoon. You step out on your pontoon and get out and walk into your house, which was great. This property was great, which we had a three month conditional clause in there. We moved in on the Saturday. On the Sunday, I was a semi professional soccer player, football player. And so I was in a semi-professional contract. On the Saturday we moved in. Sunday, we went out, first game of the season and tore my cruciate ligament. And that was really the reason we didn't end up purchasing that property because there was 89 steps to get from the bottom of the river all the way up to the top.

 

Continuing on their investment journey, Ugarte’s wife had shocks of her own.

 

[11:55] In the meantime, in three months, we found a property just across the bay, which was for sale, was the original guy who'd started our can aluminium in Australia, so he was super wealthy, it was his holiday home. And we, we negotiated on that at $230,000. And it was a double block. Now we couldn't afford the block next door which he also owned. So again, like every ethnic family, my father bought the block next door.

[12:23] And you can imagine so you know, we're an ethnic family and as Christians an Australian, true blue Australian, and she, she is going 'what the hell is going on here. The in-laws are moving in next door, this is full on'.

 

After one major setback, this investment became a better deal than originally thought…

 

[12:34] We end up going there and when we were and again, it was probably one of those first properties where we learnt a lot, because the first thing we did was before we went during our five day cooling off period, we've got the council to come in and look at the property. That was an original fisherman's shack. And downstairs was a bar area and lounge room. And upstairs was two bedrooms plus bathrooms, quite small place. And when the council came in, they said ‘you know what, it's under height here, your downstairs area’. And it was an original fisherman's cottage, they've sort of dug out and excavated underneath and put a slab down but it didn't actually make building height in code. So the council said to us, ‘look, you can't, we can't make downstairs habitable, you can only really live upstairs’. So we went back to the owners and we said to the owners ‘look, it's going to it's not legal, we need to renegotiate the price. Well, we've had some pricing to actually jack the house up and get it back to its proper height so that we can live downstairs as well’. And we negotiated I think it was about $20,000 off the purchase price. And we ended up in a position where it cost us $7,000 to jack the house up, get it to the right height and get going again.

 

Reflecting on their time together and their investment journey, Ugarte and his wife decided to take their next steps.

 

[15:35] Christine came from a, from a Christian family, a very fundamentalist Christian family. And, and you can see that for her father, it was very difficult to watch that we were living together without the bond of marriage. And so we decided we would get married. And then we said, well, what's the best day to get married, so no one would forget. Australia Day. Australia Day, the perfect day to get married and celebrate who we are. And then we can have a barbecue every, every Australia Day and invite everyone over, that'd be a great time. The problem with that was that to be able to, to cosign for a marriage certificate to get married on a certain day, you have to sign that one month and one day before you get married. So the only day we could do that was the 25th because it was one month and one day before the 26th. So we're two days away, Christine rings up the local celebrant who turns out to be her high school teacher from when she was at school. And we said we'll meet you at the boat ramp.

[16:36] So we're running along the river in this little jetski boat sort of thing that's got an outboard on the back of it. And we go over a wash and the motors not actually attached the boat properly. So it tilts the motor, throws us off side woods, and we end up in the water. And you know, one of the locals comes out and drags us out onto the beach. And so, he and I are there trying to restart the motor. But the problem with all of that was, I had my backpack with our passports and my life, a whole lot that were staked to the bottom of the drink. So we should have seen that is a sign some people might have said not to get married, but we still signed the certificate on that day so we could get married and get the application in. 

 

[17:27] So when we did get married, we did it as a housewarming, surprise housewarming party. We didn't want anyone knowing that we were getting married, the only people that knew were our direct family. So I had all my friends over, Christine had all her friends over, we had family having a barbecue, everyone brought a dish on the day. So it's salad or you know, dessert. We provided meat and alcohol. Now it cost us $1,000, including Christine dress, to do the marriage on that day, the wedding on a day. We picked everyone up on houseboats, we drop them at home, we're having a great party, everyone was having a great time, we walked out onto the pon, pontoon and we got married on a pontoon. And I just always remember looking at my friend from school, and looking at his face, and literally his jaw was hitting the ground. It was such a great day.

 

As Ugarte’s personal life was thriving, his professional life was just beginning…

 

[19:26] I just had got my plumbing licence. I was, I was able to go out and start my own business. I said to my, my father says, ‘do you want to buy into our business?’ And I said, ‘look dad, you know, we live together, socialise together, and we work together. I think it'd be too much. I'm going to go out, and I'm going to start my own business. And the reason I want to start my own business, dad is because you work too hard. And I know that in my business, I won't have to work as hard’. And he laughs at me right. And I didn't understand why until a year later where I'm working night and day, seven days a week because I'm just trying to pay the bills, you know, and with hindsight, you know, it would have been a better outcome. I wouldn't be where I am today. But it would've been a better outcome to be able to work with them. Because, you know, they've got a really good functional business with a good set of team that works with it. So, so essentially, I moved down there. And during my time as an apprentice plumber, I was a competitor in what they called at the time, well, Work Skills, which is now called WorldSkills. And that's a skill based competition for all trades. And you compete at regional level, if you win regional, you go to national level, if you're in the national level, you end up going and competing against other countries, and you can win gold medals, like the Olympics, so it'll be the skill Olympics that you'd be attending.

 

[20:39] Now, I won a silver medal. So I didn't get, I didn't get the gold. And, you know, that wasn't meant to be. I was probably without ego, the better candidate but it just happened on the day that it didn't turn out for me so. So because of that, though, I made some really good contacts within TAFE New South Wales and having good hand skills is always a really good tool. And I always, up till recently, I didn't realise but up till recently, I've always been a teacher. I realised, I only realised that recently that I am a teacher. So even, every time an apprentice came on, for my dad, I will always be the one teaching. And one of the TAFE guys that was involved with WorldSkills said to me, ‘you know what, we need some younger people coming in, would you mind doing some part timing?’. I said ‘I don't mind doing some part timing at all’. I was literally, probably only had my licence for a couple of weeks. And I was probably one of the youngest teachers within TAFE New South Wales at the age of 24. So I was doing some part time work and essentially, that led up to me being able to do part time work which paid for our mortgage. So my, my time, within the part time ranks, would pay for the mortgage, which meant that anytime any work that I did, within, within our own businesses would go towards being able to, you know, live our life, basically. So our mortgage was taken care of by TAFE.

 

[23:36] I then became a full time teacher in TAFE, New South Wales. After doing some volunteer work in a place called Wujal Wujal in Cape York, where we built an, a tourist, shack and toilet for a local Aboriginal community that were doing tours to waterfalls. And so they, they needed somewhere where they could take the white people too. And so they could go to the bathroom rather than going into their community. And came back, got my TAFE New South Wales full time teaching job. I then became an acting head teacher in plumbing and a full time teacher in plumbing. So head teacher in plumbing, and that was great. And then just out of the blue one day, starting to work on my motivations of doing the same thing over and over again, which is what you have to do in property. Find success, find your bread and butter, do it over and over again. And over a period of eight weeks, I just worked on doing the same thing. And that was, you know, answering emails at same time of the day. Making sure I answer phone calls the same time day. Make sure I put appointments in the certain time of day. And within eight weeks, I actually applied for a job which was just a pie in the sky job, which was the assistant director of business, which was a three by C of TAFE, New South Wales Sydney Institute and I got the job. So I took seven pay scale hits in one single leap and I walked into an office at the age of 36 with the nearest person to me being 20 years, my senior, and, and, and feeling really well, and you know, really had a great time.

 

While continuing to work at TAFE, Ugarte invested in more properties. This quickly became a negative experience but there was one positive: learning the danger of negative gearing.

[25:43] Having seen, you know, my father buy property, and my father bought property at peaks twice, and lost money on both of them. And so I thought I'd just follow suit and do exactly the same. So I, I had an, so we were full time in Berowra. So we were the first of a young generation moving into that area. And it had been holiday homes for a long time, mostly older people. And we were the first couple to arrive. And within six months, there was probably another six young couples that said, you know what, this is good value for money. I'm moving from Sydney, I'm moving up here full time. And the house next door was put up for sale and an accountant bought it, who's still my accountant. And about two years into him having that as a holiday house, I rang him and said, ‘listen, we're moving back to Sydney, I found a factory, I'm going to a factory conversion. And I'm going to sell Berowra, and I'm going to use that as a deposit for buying this factory’. And it was in Botany this factory. And, and Murray was his name, Murray was, still is his name. Murray rings me back after five minutes, he says, ‘you don't need to sell it. What I want you to do is go and see the bank manager. Refinance against Berowra Waters, has gone up in value, take that put a deposit on over there, it'll be cashflow neutral and you can you can still continue to stay at Berowra Waters, and in the next few years, you can develop the one in Botany’. I went that's a great idea. That's the sort of accountant I want.

 

[27:11] Now, as it turns out, what I thought was neutrally geared, it was neutrally geared as long as we only took into consideration the cost of the money that was on the mortgage of the, of the factory. What I hadn't counted was that the money that we've taken out of our own home was costing us money, right? So I'd never actually factored that in. So it was negative geared, it was negative geared by about $8,000 a year. Now we were struggling for money. So I think, you know, this is absolutely crazy. I'm struggling for money. Obviously, I'm paying way too much tax. Even after negative gearing, I still haven't got enough money. So what I'll need to do is go out and find another negative geared property. I'm going to buy another one, so I've got more money at the end of the year. And then my tax problems are disappeared and I've got more money in the bank account. And so lo and behold, after only buying into seven different properties, we were at $36,000 negative cash flow. And at that point in time, I was on $96,000 wage. So when you look at that, we had $96,000 in wage, but take some tax off that we're about $66,000. Take the negative gearing of $36,000 off that. We were down to $30,000 and at the time, we had three kids. So three children, a wife to feed, feed and myself on $30,000 a year, and our breath was holding out for the end of financial year so that we could get, out of our 36, we might get 10 or $12,000. And all it did was you know, just to see that check in those days, we actually got a check from the ATO. And I'd look at that $12,000 and I just breathe a sigh of relief and go right. All right, we're good now, we'll be able to survive the next two or three months without having any problems.

 

28:53 And all that check did was actually paid for the next lot of negative gearing anyway, and it was just this vicious circle. And it was really quite painful to go through and it was quite demanding on our relationship. And we never actually really got to the crux at that point in time, of why we never had any money. But you know, we just, I wasn't ever focused on money. It wasn't a big thing. The only focus I had on money is how little we had in the bank account, not where it was actually really going. And it's, and it's, it's actually something that we see a lot with the with the clients that we work with on a daily basis, that you never get to, they never actually stop enough to say, where am I spending my money? And what is a good investment, you know, as opposed to a bad investment. Now, you know, I know that there's plenty of investors out there that say that negative gearing is is a good thing. I will never ever, ever negative gear again, unless, I'm buying a property for a specific reason for a year or two because I'm going to develop it into the future. But I will never go out and buy a new property. It makes no sense whatsoever to actually lose money on an investment when you can actually do strategies to get really great capital growth properties that will also return your cash flow. And you know, and that's, that's something that we've, we've been able to master over the last few years.

 

TAFE New South Wales was Ugarte’s last job before becoming a full-time property investor. There were two specific events that motivated him to change his life.

 

[30:26] There's always that one point in someone's life, when there's a set of circumstances may well it be one or a couple that ships at about the same time, that puts you in a scenario of change, and you don't, you don't have any choice but to change because the bricks just hit you in the face. 

[30:50] So now we're at a point where something has to change. Now, we were sitting there in 2000, in 2010, was the major point, turning point for me, personally. And so we've written a book, my wife and I. Small is the New Big: Health, Wealth, Love and Happiness. It's a holistic way of looking at life, making small incremental changes, to make a difference in the big scheme of things. Now, in that book, I tell this story about sitting on the estuary of a place up at Coffs Harbour, where we went to, we'd go holidays every year, and we would share it with, with another bunch of TAFE teachers, and not all of them plumbers, obviously. And I'm sitting on the side of estuary there and by stealth, one of my mates kids, was about eight year old at the time, came up out of the water and looked at me and said, ‘you're Jenny Craig's biggest challenge’. Now, so that like it was everyone laughed, and even I laughed, but it really cut to my core.

 

[31:51] And for me, I didn't actually think that I was overweight, but every time I took a new job in TAFE New South Wales, from part time teacher to full time teacher, I put on five kilos. And then from full time to head teacher, I put on five kilos. And from head teacher to Assistant Director of Business, I put on five kilos. So I was essentially 16 kilos overweight, for my size. Now, I'm not a tall fella, right? I'm quite short, I'm five foot one, I think, or five foot three in the old scale. And, and, you know, when, when you're 16 kilos overweight at that, sort of, you know, when you should be about 63, and you're weighing 16 more, that was, you know, that, that was a huge impression on me that I thought I was actually and I had all the excuses in the world. You know, I'd had two knee reconstructions, you know, and, and I'd hit 30. And, and all that sort of stuff that went through my head that said, and they're all just excuses. They're all just crap that I've feed my brain, right. So that, that incident happened, and I thought, that kid has just given me the most honesty that anyone would ever give me. And you know, sometimes with kids, we actually don't give them the ability to, to be able to tell the truth. And we stop them from doing it. And, and, you know, when I wrote this, and, and his mother read the story, she says, ‘I'm so sorry, I can't believe’. I said, ‘do you not see how beneficial that was to me that your son did that. Like I have to be forever and the rest of my life grateful for him saying that to me’.

 

The second event occurred at Ugarte’s work. Whilst he was once passionate about his job, it was becoming a source of negativity.

 

[33:14] Now, this is the problem. When you love your job and you're 36 grand negative, it doesn't really occur to you that your life is going in a shambles, because you just love turning up work. And as a teacher, I was turning up and doing something that I loved, and I still love doing right. So everything was great. Like I had a six week holiday at the end of the year, we've gone away to Coffs Harbour, this kids told me that I'm overweight. I go back, I turn up on the 26th, 27th of January 2010. One day after our anniversary, I walk up the stairs and walk into my office, and I've got a new boss. And that new boss is the sort of guy that, you know, they put in a corner somewhere so they can't do damage. The problem was it was in the corner of our plumbing office. And that new boss, he tore my world apart in two days. And to this day, I'm still emotional about not being able to, be able to secure myself in a position. I was $36,000 negative and then all of a sudden you go holy crap, you know, how do I get out? $694 was coming out of a pocket every monday morning to pay for the negative gearing. And so when I didn't love my job, two days after that, I went home, my wife saw how unhappy I was. And I was completely unhappy, the kids became unhappy and the pain of negative gearing really got to start inflicting into, into my soul. It actually started to tear me apart. And for the first time in many years after loving my job, I'm now in a position where I hate my job and I'm no longer passionate about the thing that I'm passionate about and I need to get out and I need to get out quick right?

 

[34:50] And so you know we were fortunate that we were in a position and someone had said you know go and see these positive cash flow seminar and, and events. We went to do that. Now, for me those two pivotal moments, one month apart, were, were the one basis of change that I needed to have, the pain that I needed to have to change. Now, you know, having worked at different levels with different people on their own personal development and it's something that I'm very passionate about helping people move forward. I know that there's two styles of people. There are people that are led by the carrot. So you know, when you're talking about the donkey and putting a carrot in front of it, people that are led by what's the goal, what's out there, I really want to achieve that, I want to get it. Then you've got the opposite and using the same donkey, the only way to move some donkeys forward is by whipping them on the ass and making a move. And for me, unfortunately, my makeup and my motivations and attitudes are that style of person. So you have to whip me pretty hard. And that pain was something that made a big difference, a massive difference to our change in our evolution to where we sit today.

 

Attending this seminar changed the way that Ugarte viewed property investment.

 

[36:20] My aha moment came when I sat in a positive cash flow seminar. And you know, two years earlier, I'd been told go and see the seminar, it's amazing, you'll be able to learn how to get positive gearing out of, out of property. And I said, ‘don't be stupid, can't you see this is like a pyramid building system? What they'll do is they'll get you in there. It's a multi level marketer, you'll sign up and then someone signs up underneath you and the person on top gets all the money’. And, and that was the ignorance that I was travelling with right. So, so after that had happened, you know, after those two incidents that happened, I went to that same person that told me to go into the positive cash flow property. And he had left work, he no longer needed jobs, he bought positive cash flow property. I said, ‘show me what your got, I don't understand how this works. Because I know property. And I know negative gearing. And I know that you can't do positive gearing’. He says, ‘well, here's my properties, this is how much it costs me, this is how much it earns. And then at the end of the year, I've got money left in the bank account’. I went ‘you serious?’ ‘He goes yep, there are the figures, you'll have a look at them’. So I went okay beautiful. I said, ‘I have to go and see this person that you went to see. And I want to make sure that I do the same thing’. And so I sat in that seminar, and I looked up there. And I said, wow, those figures are amazing. They're unbelievable. Now they're obviously all success stories. And I was convinced straightaway. And I said, ‘I've got to do this. This is something I've got to do’.

 

[38:30] I go back home and I say to my wife, ‘look, I've done something amazing for you, Christine. I've signed you up to this programme. What I need you to do is learn it, you know, come back to me, once you've learned it all, tell me what it's about and then I'll decide what we're going to buy’. And, and it's just, it's so hilarious to think that that was the way it was. And now, it turned out that I was smart enough to actually put myself on as a partner, I turned up at the boot camp and about one day, probably halfway through the first day, I remember thinking to myself, this is not something that you can learn by proxy, like, you got to make a serious attempt, you've just had two life changing occurrences happen to you, someone's told you, you're fat, and someone else's ruined you, your job. You need to make a change and it's not going to happen by acting the way that you used to act. And so, for me sitting in that seminar was a pivotal moment.

 

Coming up after the break, we hear the story that pushed Ugarte to keep trying when property investment seemed to be an unattainable goal…

 

[7:35] This inspector had turned up and, and I was in tears. I was literally in tears, I was so down about it all. And he had a piece of paper in his hand and he was walking up the driveway.

 

We will explore Ugarte’s passion behind creating multiple functional living spaces within the same home…

 

[17:23] And I stumbled across, you know, with a couple of other investors a strategy around what we now call the High Income Real Estate System. HI-RES, which is concentrating on smaller spaces and in particular, looking at executive rental, holiday rentals, short stay, what we call HMO house of multiple occupation or a legal way to be able to do share houses, and more importantly, rooming houses and boarding houses.

 

We will delve into mindset challenges when investing in property…

 

[0:21] I think the major problem with people that want to invest in property is that they see, they go out and they see someone become successful. And they idolise them.

 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

 

 

On property investment journeys, challenges can arise that make you feel defeated. When this happened to Ugarte, the kindness of a stranger was the extra push that he needed.

[4:53] Our first project that we went into do actually lost us money. By losing us money it taught so much and, and there was a, there was a, there was a few components to losing money in this one. Firstly, it was that I still wasn't detailed enough and to do a proper, full due diligence feasibility. So I sort of guessed numbers and that wasn't, that wasn't because of the education. That's because I lacked the education. I didn't take the time to learn it. And so from that loss, though, I probably picked one of the hardest, no the second hardest.

[5:26] So another great interesting story because this was really the leapfrog step that happened for us. We went into this project. We had a nine month settlement on that. The GFC kicked in and all of a sudden the lending tightened up. So, the lending tightened up in our nine month settlement. So, trying to get finance for that, for that project is really difficult. And I remember with my dad sitting at the RSL, Botany RSL and on the back of a serviette, I did the feasibility, right. So I said that I was going to spend $120,000 on the subdivision. Now it says it turns out the mobile inspector that inspected all the subdivisions towards the end of the project, and I'll tell this story in a second. He said to me, that's probably the second hardest subdivision I've seen on the coast, it was up on the central coast in New South Wales. And so I happened to pick a really, really difficult subdivision ever, first subdivision, I shouldn't have done that. But it taught me everything that I know now. And it meant that I could go off and do my thing. So I call it my property hextree. You know, rather than going university and end up with the 70 grand job, I actually you know, I paid for losing on that project. But what it did for me in the future was earn me 200, 300, $400,000 on the next projects that we did.

[6:38] But that project was, was quite interesting, because I was still in paid employment. And we just had everything up against us, everything worked in the wrong way. We're and plus the fact that we were inexperienced. And I'm sitting on the side of, it was 110 metre long driveway, we had 16 neighbours around us. It was 25% grade one direction, 25% grade the other direction, so it was quite a slopy block. We had to dig six metres down to do a sewer connection. We had to bring a hydrant main in from the street to get to the back block. It was a full on subdivision. Like I learned so much. And they, the budget of $120,000 got spent just on the retaining walls on the site, not let alone the concrete, the excavation and everything with it. So I'm sitting on the side of this driveway, one day, rain, clay, everything. And the, this inspector had turned up and, and I was in tears. I was literally in tears, I was so down about it all. And he had a piece of paper in his hand and he was walking up the driveway. And he saw me and he obviously saw that I wasn't in a good state. 

[7:53] And he and I look back at it now and I know he folded the piece of paper and he put it in his back pocket. And he said ‘what's going on, mate?’ And I said, ‘Oh man, this thing is absolutely killing me. I don't know what to do. I don’t know know where to go and what you know, it's just really draining me’. And for whatever reason, you know, sometimes in life, people just come along. And this inspector is, wasn't known to be the nicest guy in the world. He, he absolutely poured his heart out, he looked at me and he said, ‘you know what mate’, he says, ‘I see guys like you come along all the time. You're young, you want to go, you want to have a go at it, you do your first project, you lose money, most of you disappear. Some of you hang around, and you do the second project and you break even on the second project. And if you can go on and hang on to the third project’. He says ‘you guys do really, really well’. He looked at me straight in the eyes. And he said to me, ‘I want you to do three projects’. And with that, he turned and walked down the hill got back in his car and drove away.

[8:50] Now, what I now know was that day with all the rain that was going on, I had clay spilling out onto the street and going into the stormwater and I was trying to control it. And he had actually come to give me a fine, an environmental fine, for what we were doing accidentally on the site. But instead, he folded that piece of paper up, put it in his pocket, gave me the best advice that I had ever been given in property and walked away. And you know, to this day, I just, you know, I wish, I wish I could find this guy because I can't find him. I just, I just love to hug him you know, because he just did so much for me on that one day. And that was amazing.

This project taught Ugarte many lessons, one of the most valuable being, ‘do a project in a price point that’s not going to hurt you’.

[11:20] If you want to do a subdivision, don't do what I do and go and buy, do a subdivision that costs a lot of money. Go into a subdivision in a little regional town, where it might cost you 100 grand to buy the block and do the subdivision. Now I know you will not make a lot of money out of it. I also know that if you lose money, you won't lose a lot of money out of it. But the process of subdividing a block of land at $100,000 and subdividing a block of land a $2 million is no different, the process is exactly the same. So go out, try it somewhere else, and come back and then try something bigger. And I also always say if you go out and you try a strategy, in any strategy in property, for the first time, and you come back, and you break even I'm ecstatic for you. Because what you've just learned is a full university degree that will earn you money from this day forward forever. So if you make a profit man, you should be going out for dinner for a few nights just to celebrate the fact that you made a profit out of the first time that you tried a strategy. And don't be scared of trying it, just go in and get stuck into it.

After completing this project, Ugarte started to find his niche in property investment… 

[12:57] So we went through that and we did that subdivision. We sold off, we got to a point where we bought a couple of positive cash flow properties, and some of them were manufactured, and some of them were already. So they're already set up and already cashflow positive. And they were the times where you could go out and just buy it straight up. The major one we did was a Mascot development that we bought. It was a shop downstairs and it had a three bedroom apartment upstairs and a two bedroom behind. Now at the time, we were looking, should we buy a PPR in the area for about $700,000. But for $655,000. I bought a, a property that had potential for earning income. We bought it off a, an older, Greek man who was advised to sell it because he wouldn't get the pension, which was bad advice. And he was receiving at the time $420 a week rent and we decided to buy it. We didn't want the tenants in there. They'd been there for a long time, we did some work to the property and we took the rent from 420 to 1235 I think. And that made that a 22 I think, or $27,000 positive cash flow property in Mascot, growing at the rate that Sydney prices were growing at. And so that was a real stemming of the market to say, wow, this really works.

[14:18] So having the multiple and the smaller spaces started to tweak something in my mind. Now we had gone off and we followed the mining boom, we had bought mining properties, we do have exposure to mining and it was great while it was high. But when it's down, it's down. And so currently we've obviously got some negative gear properties that aren't sellable, that were positive properties. But the smart thing that we did was and at the time working with clients, we also said if you're going to go and buy a mining property, make sure you've got three Metro properties to back it up. And whilst you're getting cash flow, make sure you're paying debt down as hard as you can. Because while you might have debt of $400,000 today, you've got cash flow of 100 grand, that could turn around very quickly. And it did. So for those people that pay down their debt, you know, on a property that was had a mortgage of 400, it's now got a mortgage 200, you obviously don't need the same amount of cash flow to get yourself into a neutral position, which is basically what we did. But from there, what had happened was that we started to investigate a number of different outcomes. And so let's talk about four years ago. So where 2012, 13, 14, we were on the roll. 

[15:26] I was going to be the biggest property developer that you'd ever seen anywhere in the world. And I was so, so money hungry or so driven by the dollar. And something happened, something happened for me very quickly. And that happened overnight. And it was literally getting out of bed one day and saying that I was very unhappy. I suffer from anxiety, sorry Tyrone. I suffer from anxiety. And it's interesting, you know, I can speak to 800 to 1000 people at any one point in time, and I could literally stand there naked and have not one level anxiety. But when it comes to watching $1, going down with direction, I will stare at the ceiling for eight hours every night. And, and that anxiety, you know, led me to a place where I said, you know, what, what am I doing socially? What am I really doing to actually benefit others, because I thought the money was going to make me happy. And what I didn't realize was that it doesn't make you happy, that happiness comes from a point of within yourself. And I have to really start working on and I'm thankful, I'm thankful that I've got some very beautiful people around me, including business and life coaches and my wife, who see, who see ahead of schedule, that I'm on, I'm on the  spiral, and I don't have to spiral anymore.

This was a turning point for Ugarte, from which he discovered the High Income Real Estate System. 

[17:31]HI-RES, which is concentrating on smaller spaces and in particular, looking at  executive rental, holiday rentals, short stay, what we call HMO house of multiple occupation or a legal way to be able to do share houses, and more importantly, rooming houses and boarding houses. Now, as soon as I say rooming houses and boarding houses, everyone in their mind automatically goes to the perception of okay, you're dealing with drug dealers and criminals and bikers and paedophiles and you know, the decrepit part of society. And that may have been the view in 1960s. But I can tell you that since we started building rooming houses and boarding houses for ourselves and teaching people how to invest in them, I can tell you that we've got granite benchtops, we've got self contained units, and all we're doing is building little flatets or studios, which are high demand in the marketplace. Now most people don't realize this.

[18:25] ​​And I'll give you some statistics. I work, so I'm a board member of the Future Housing Task Force. It's an invite, invitation position. And there's 12 of us on there and my specialty areas, small spaces, rooming houses and boarding house across the country. So when it comes to the country, I am the leading expert on knowing different policies and how they work in its umbrella. So the big picture scenario, and then we've got a system in different states allow. 

[18:53] Now we've been working with the Tasmanian Government, and I'm very, very excited to say that the Tasmanian Government is an unbelievable, it's a perfect storm right now. We've got a very good government leading very well with bureaucrats that are listening to the politicians. And we've sat in front and there's actually a job title in Tasmania, is called the Red Tape Coordinator. That's his job title. So it almost beats master of the universe. So his job title is to sit there and say, if you put a policy in front of me, and I agree with it, I won't even go to the to the government employees. I will go straight to the Minister, will show it to the Minister. The minister agrees with it, we'll put it through Parliament right away and we'll get it approved within six weeks. And we've been working with the Tasmanian Government now and I, the reason I bring up the Tasmanian Government is we put a policy in front of them that they probably are going to put in the next two or three months is going to be put into the state based policy. In Tasmania currently right now on the housing waiting list, is 3700 people on the housing waiting list. Out of that 3,700, 60% of them are are single and 20% of them are couples. So you could say that 80% of that list only require a studio and a one bedroom apartment. And yet, the housing stock in the wait on to the public housing, 80% of their housing stock, are three, four and five bedroom houses.

Discovering HI-RES was a monumental step for Ugarte. It allowed him to continue helping his community.

[20:17] What's happened in Australia is that we build the biggest houses in the world at 246 square metres, we have two and a half people living in every house. Whereas we used to have in, in 1881, we had five and a half people living in 35 square metres. In 1960, we had four, just under four people living in 85 square metres, and now we've got 246 square metres to 1.5 people living in every house and with 12 million empty bedrooms tonight. So affordability was the point that I said, ‘how can I make a difference to what I do on a daily basis? Rather than going out and doing a project to make as much possible money as I could? How can I help out community and family?’

[22:20] ​​You know, I remember growing up in my parents house at Eastlakes, and the house next door was a clapboard home. And we were living in a speckled render home with, with arches and bars on the window. Two completely different homes, two completely different cultures. But the girl next door, the lady next door was my auntie Carmel. And she actually fed me every morning before I got to school. And I didn't realise until the age of 11, that the white chick next door was actually not really my blood Auntie. She was actually just the lady next door. And, and this for me was what I decided from a social change I wanted to bring back into the community. I wanted to bring back the social aspect of who we are as community and bring back affordability. And, and the reason and the way, the way we do this is really quite simple. Remember, we've got 12 million empty bedrooms. Currently, government can't afford to put housing out to the community because they haven't got any money. So they should be concentrating on people like you and I and your listeners that have zero to six properties as investment properties and be able to convert those four bedroom, two bathroom crap houses into something that's usable. Now I know this because all we do now is hiring strategies on creating more functional living spaces within the one home. And by doing that you attract, you've got this massive funnel of people that are looking for housing, the only reason a couple rents a four bedroom house is they don't have a choice to rent anything else.  

Wanting to create more functional living spaces in the one home led Ugarte to his property investing strategy…

[25:01] Our key strategy and what we call our bread and butter strategy is to do a simple subdivision of a one into two. And then we, whatever we build on those will be a HI-RES strategy. So on this particular one, we built two duplexes, which are HMO designs. So they're actually what we call a 1B building, which has universal compliance of a disability access into the property, and can be rented into separate portions. So each one of them has three, it's a three bedroom, three bathroom, and each side essentially got 12, bedrooms,12 bathrooms. And in that, in that property, if I was a standard investor, they're worth about 450 each. They cost us, they're worth about 1.8, they cost us about 1.36. So we've made, we've made a good 200 $300,000 in equity in that property. A standard investor would have built a normal three bedroom, two bathroom, or three bedroom, whatever, and would rent it for 450 a week, but we're getting $700 a week because of the way we've built. And so that turned that property, if we would decided to keep all four as a standard investor, we would have had a negative cash flow of about somewhere between 12 and $15,000. But instead, we've actually got a positive cash flow of somewhere between 20 to $30,000.

Not only does this strategy help the community, it will likely benefit yourself…

[26:10] You can see that by doing a HI-RES strategy, not only are you meeting the needs of the community, but you're actually doing yourself really well by cash flow strategy. You can manage to keep more properties, which means in 10 years time, you can double its value. And on top of that, you're actually taking the pressure off the housing market, because families can rent family homes, and people that want to rent small spaces can rent small spaces, then they can go off and they can afford to start saving some money because they don't have to pay for a full house. They pay for part of a house, they've got their own, they've got their own self contained area, they can save money over two or three years, they meet a partner, they save even more money, and then they can get into their first home.

[26:49] Now I can actually sell a first time buyer, one of those properties for about $8,000, if they've got really good income, and they can get a high LVR, they could get into that property for $8,000 using the first time buyers grant and stamp duty exemption and end up in the property for living there for about $100 a week whilst they rent out other parts of the property, which they can to do as their first home, it doesn't say that you can't do that. And after living in for six months to a year, they can then move out and turn that into a positive cash flow property of about 300 or $400 as their first home. And this is what the problem is with our marketplace, is that we've got developers building four bedroom houses and Gen Y's wanting the end product instead of working their way up. 

As well as generation Y, there is another demographic that Ugarte is hoping to help with this strategy… 

[33:00] Currently, right now, we have the growest, the biggest growing rate of homelessness in this country is a 55 year old plus woman. Now, these are the women that were told when they were younger, marry someone who's got a good job and you'll be able to, you'll be looked after for life. They didn't tell them, it's unlikely that you'll like them in 30 years time, they've looked after a house for the last 30 years and their children have grown up, they get to a point of financial settlement and they have very little. And that we have a huge amount of these of this demographic renting our rooms and they are brilliant tenants. They are the best tenants you can imagine.

[33:38] And the um, the other part of the problem with a 55 year old plus woman is she gets settled in, she gets her independence back, she gets a phone call from her 70 year old parents and they say ‘I don't know how to look after dad anymore, you're gonna have to come and help me’. And they really are in what ain't a crap sandwich these five year olds, and it's an awful place to be. But what I can say is that every morning I get up, I know that I'm making a difference in the change to that demographic. I'm making a change to 70 year olds, and I'm making change to Gen Y's. Now, the reason we actually put the HI-RES programme together was that Christine and I might be able to do 20, 30, 40 properties a year right? In the end, we wouldn't be actually making a dent in the market, which is why we did HI-RES. We know there's a huge demand. And if we can teach other people to do exactly the same, then we can get to the point where we can actually say in Australia, that the great Australian dream of buying your own home actually within reach for every part of a generation and that's that's why we do what we do.

To become a success in property investment like Ugarte, he urges the importance of education, rather than going in blind.

[0:21] I think the major problem with people that want to invest in property is that they see, they go out and they see someone become successful. And they idolise them. So let's, you know, you look at the, you'd have to look at the, you know, the Packers of the world and, and the Trump's of the world with his trumpet brainstorms. I mean, Trump is a very successful property investor. Branson, when you look at Australia, you know, you've got, you've got Garner, and you've got Chris Grey, and you've got all these other investors and people go, I just want to be exactly like them. I'm going to go out and I'm going to do what Ian did, not do any education whatsoever and I'm just going to buy property because I know I'm going to do rich one time, at one point in time. I absolutely agree that you will be rich if you bought property of value, even if was the worst deal you could possibly buy, as long as you could afford to hold it. Because in 10 years time, we know that on average, it's going to double and 10 years from that it's going to double again.

 

[1:18] I needed education. Because whilst we were out there buying negative geared property, because the government, you know, for whatever reason, promotes that it's a good thing to do. We were never going right. All you're doing was just following the herd and you know, with the classic case of, you know, there's all that saying that if you do follow the herd, eventually, what happens is you just end up stepping in their poo. 

When it comes to personal habits, another tool that Ugarte uses to achieve success is having specific goals…

​​Ian Ugarte:

[1:58] I'd never, ever written a goal down on paper, to actually clarify what it really was. Previous to that, it was yeah I'm going to be a millionaire, or I'm going to be rich, or I'm going to be, I'm going to own a Porsche or I'm going to own whatever. There was never anything ever written down that had any meaning to it and no why. There was never why in anything that I ever thought about.

 

[2:20] Now, interestingly enough, most people that want to invest in property want to do it so they can become rich. And having read a number of different books that we read, I picked out a quote recently that said, 'rich people have a lot of money, and wealthy people have time to spend it'. So for me, I latched on to that and said, well, okay, I want to be wealthy, I want to be in a position where I have the point to be able to get up in the morning, and choose what I want to do, and which is help other people. And so for me, once I sat down and set out goals, Christina and I both set our goals, in all areas of our life. So we get in our wealth, health, our opportunities, so opportunities, you know, what can come up for you, our love, and our relationship and the evolution of who we want to be. And so we've set those goals in those five areas, and they were detailed, and then we broke those tasks down. 

[3:11] We then put them on to, so I write things, Christine loves to put things on spreadsheets, we put it onto a PowerPoint, and then we put it on a screensaver on our computer. So whenever we're sitting, we don't have a TV at home. So remember, we're sitting on our computer in the background is actually rolling through a screen save, we can actually see what our goals are flashing between our eyes. And our own unconscious mind is picking those up constantly, being able to put that through our filters, and managed to put it in the back of my brain. Say that when you are driving, and I always say that you know what it's like when you go out and you buy a new car. And it's the it's the yellow, it's the new yellow sports car, no one's got a new yellow sports car, you go into the dealership, you pick up the yellow sports car, you drive out the door, and all of a sudden, you ten of the same sports car. And because you're now aware that they're there. So when you write your goals down, when the opportunity comes up, all of a sudden you're aware that it's there, and your, and your brain just automatically goes 'I need that', and you don't even know you're, it's your, it's your unconsciously achieving because you've consciously written something down.

Thank you to Ian Ugarte, our guest on this episode of Property Investory.