We're back with Mike Mortlock, managing director of MCG Quantity Surveryors. After discovering just how much financial success his property investor and developer clients were achieving, Mortlock decided to use his vast knowledge of the industry and get involved.

In this episode of Property Investory we will hear about Mortlock’s deeper motivation for becoming a property investor, his high aspirations for his property portfolio and some important tricks to reach your financial goals and much more!

Full Transcript

Mike Mortlock:

I’m not really interested in money. I’m interested in freedom. 

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 Mike Mortlock, the managing director of MCG Quantity Surveyors. You’ll hear how he transitioned from the country life to the city life, how he became interested in property during his university years and the events that unfolded after purchasing his first property and much much more! 

We start off by hearing about what Mike Mortlock’s day to day role is.

00:10     I'm the managing director of MCG Quantity Surveyors, and I guess my background is I'm a little freckled kid from the country in New South Wales. I moved to sort of as big as smokers could stomach to Newcastle when I was about 16 or 17. And yeah, I guess the day to day is running the MCG Quantity Surveyors team, specifically on the tax side. That's more my specialty with my business partner, Marty, who's more on the traditional sort of estimating side.

As the managing director of MCG Quantity Surveyors, he goes on to explain how the name of the business came about and what it stands for. 

00:47      It's the worst story, honestly. And it's kind of painful too. Because you get people ringing up saying, ‘I left my hat there’. I'm like, you didn't leave it here. You're talking about the MCG, the cricket ground, right? So the actual name of the company is M Consulting Group. Like the letter M because we thought, oh, you know, that's like Bond, I'm Mike he's Marty. You know? So there's like, I'm Mike Mortlock, M.M you know, so it's just like M Consulting Group. Because we thought like, you know, maybe we'll do something else. We don't just want to be talking about our specialty. And then M Consulting Group is MCG. So it's MCG Quantity Surveyors. I wish it was a better story.

1:35        Luckily it's not the MCG that we're getting confused about. 

1:38      I tell you what though they are very difficult to our SEO. If you search MCG, you're not going to find us. 

Mortlock delves into what a typical day in his life looks like. 

01:56     It’s changed a lot since we started. Because in starting the business, we started from our bedrooms. Day one, I was doing everything. But now, you know, it's more the ivory tower stuff. It's no real work, you know, I've got the easy job. I mean it's mostly just kind of overseeing things from, from a strategy point of view, relationship building and media and blogging and all that sort of stuff. So yeah, just what you would expect of a small business that's you know, trying to grow and looking after the team and the relationships we've got with people that put their support in us.

He goes on to share how he initially started MCG Quantity Surveyors. 

02:46     I got to the point where there wasn't really sort of much further that I could go for in that business. The guys that started it, they've sort of since left, but at that time they were sort of beginning their transition to leaving the business. I would ask a question and they were like, oh one of the directors is in the South of France, the other one's in Bali, so we've got to wait until they come back to get an answer. And there was a level of management above me, but there was no way for me to sort of make myself known to sort of progress. I kind of thought I'd learnt everything that I could here. There were certain parts about the culture that changed over the years, which you know, I didn't enjoy, I had more fun in the beginning and I just hated being stale and I hated being bored. So I left there, got a consulting gig in the rail industry, just like to pay the bills and then sort of started building the systems that I needed to start the business with my business partner Marty, and we just kind of went from there.

03:48         Fantastic. And how long has it been running for now?

03:51        2011 we started, so we're coming up to 10 years. 

03:55    I have seen your practice for quite a while, actually. When I first started in property, I did see your brand around for a while, with all the other clients of course. And there's not that many in the market actually, it's mostly you guys at the top too. 

04:14      We're definitely not the biggest I think, depending on who you talk to, we might be one of the more prolific from a content point of view, so easy to see us around. And we definitely try to do that. We're trying to lead from the front, whilst we might not be the biggest, we kind of think that leading from the front is more about the initiatives that we're doing, you know, like industry first data releases and education and all that sort of stuff. So yeah, we're having a lot of fun, really enjoying it and there's a bit of competition out there and there's a few new players in the marketplace, but we've got our own little niche and we're happy with it.

Before delving more into the property side of things, Mortlock shares a bit about his upbringing. 

05:01 I was born in Penrith and I left when I was two. My parents brought me, that wasn't sort of a solo trip, of course. And I moved to Yerong Creek, which is such a small town that it shouldn't even really exist. It's basically two tumbleweeds bumping together and that's the town, it's sort of near Wagga Wagga. And so I went to primary school there. So from two to about 11, I was elected the primary school captain at the end of year five, just as we had to leave. So I never served a day in office, I like to say. I got the badge, they did give me the school captain badge, but I never actually got to do it. So then moved to Griffith, which interestingly both those places are, you know, within about 200 kilometres of your first investment in West Wyalong. And in that area of the world 200 kilometres is just like a milk run, you know, that's not a big distance.

06:01     Very true. I remember when I went out towards that way, I thought, oh gosh, it's just space after space. 

06:07   Just flat, yeah. And so I mean, Wagga Wagga and Griffith, are similar sort of places. And then I moved to a place called Caves Beach which is sort of between Newcastle and the Central Coast when I was about 16, and I've hovered around the same sort of Lake Macquarie and Newcastle area ever since.

He explains the reason why his parents decided to move to a different location during his younger years. 

06:35      The reason for going to the country to begin with was because my parents thought that would be a great place to start a family. And then moving from Wagga Wagga to Griffith was my old man getting a different job in the company that he was working for. And then basically we moved to the coast because I had a lot of health issues growing up. I had some chemical sensitivities and I had chronic fatigue syndrome. And you know, it's the sort of place where a dust storm could nearly take your life away, because it's not like the normal dust that you would see in a city. And you know, the crop dusters would spray over the top of your head. And it just kind of wasn't my jam. My body was not really enjoying it. So we moved to the coast, sea breeze and I think I remember at the time my sister was furious at me leaving all of her friends and now I sort of make fun of her saying like you could be living there still right now and she's like oh, thank God for that.

Tyrone Shum:

He shares whether the move to the coast benefitted his health problems and was the reason why he stayed there for a long time. 

07:58      I don't know necessarily if it's the reason why I've stayed there, like from a health point of view my health sort of started to get pretty well once I became sort of like a later teenager or young adult. But yeah, it made a big difference and honestly moving from the country to the coast, like there's something about the coast now, like I would feel psychologically sort of pervaded in a way if I wasn't near the ocean now, I might only dunk myself in it once every three years. But just knowing that I could go there this afternoon just makes me feel nice. 

08:43     It’s a completely different perspective. It's just nicer to be next to the water. I used to live, where my parents used to live, by the water as well. And it was just nice to wake up and look out and go, wow, this is fresh air and water and so forth like that compared being in the suburbs, I don't mind though, it's great for family and stuff like that, but it is becoming very I guess dense out this way, with all the suburbs and so many buildings and so forth. So it's a different lifestyle altogether. 

09:07    Lake Macquarie is great because compared to Sydney, which is where most of I guess our businesses are in Sydney. We probably do more in Brisbane and Melbourne individually than we do in the Newcastle area, it just happens to be where we live. But you know, property is cheap. It's getting up there, but you can buy a place that's two or three times the size as you could in a similar suburb of Sydney. And you know, for someone who is kind of like a country kid at heart, this is all you need. If  I feel like Ethiopian tonight, I can get it. You know, that doesn't happen when you live in Griffith. That's like, do you want fish and chips? Or do we just get sausages?

Mortlock shares how he adapted to the change of living in the country to then the city. 

10:36      It was a huge culture shock, but the entity that suffered the most was our Kelpie named Sam. He went from 50 acres to, you know, 720 square metres. And he struggled more than anybody. That was a bit sad. So we had to make sure we took him on lots of adventures. But yeah it was a massive culture shock and it wasn't just you know, moving from the wide open spaces to more of a suburban style set up. It was also kind of like the people, like I remember in high school, people getting teased for being poor. And when I went to high school in a place called Swansea, one of the guys I was friends with, Tim, people used to pay him out for being rich. It was like, oh, your dad's Microsoft shares must be going really well. I'm like oh this is the complete opposite. Like what is happening? I don't know what is right and what's wrong now, being rich or poor or something, I guess kids try to pick on you for whatever they can. But yeah, it's just a different mindset. Like it was more about wealth in the country than it was in the city. That one just took me by surprise. 

11:49     It is the complete opposite, so people in the country were talking more about wealth? That is completely a surprise to me. I would not have ever expected to hear that. 

12:01    Another thing with being in Griffith too, is I've sort of got the privilege sort of background of being the most anonymous person on earth, really. Like I'm kind of English, Irish stock, you know, typical white dude. But in Griffith I was kind of like a minority because most people were Italian and that was kind of weird because I realised that, oh no, way, here in Swansea, there's no Italian people like, and that took some getting used to. 

Reflecting on when he finished high school, he shares whether he continued studying or delved into the workforce. 

12:49      When I did year 11 and 12 at high school, I did part-time. So I was doing three subjects of the six year 11 and then three subjects of the six year 12. That was really just for health reasons, to reduce the study load, which I look back on and have sort of regrets on. I wish that never happened. So what actually happened then is I hadn't finished the HSC when I was supposed to in 2000 or whatever it was. So I ended up going to TAFE to finish the HSC in two years. So I did the three subjects of year 11 and the three subjects of year 12 in one year, somehow. And then it just so happened that the HSE finished mid year and it's kind of like, well, you can't do nothing until the end of the year.

13:37

You don't sort of really have a plan. All I wanted to do growing up was to be a fighter pilot, but with being on full time medication, it was just that there was no chance. I mentioned my mate Tim before, he was my sort of best mate growing up and he had epilepsy. So we were both in the garage doing flexed arm hangs, trying to get the air force requirements, but it was the saddest thing in the world because neither of us had a chance. You cannot be an epileptic and be a fighter pilot. And you know, I couldn't do it either. So I was pretty rudderless and I kind of thought, well I'll look at the stuff that TAFE was offering. And I ended up doing a real estate course. Now I know that you can sort of, well it seems like you can do one on the weekend these days, but I did a diploma that actually took a year. So it was like nine till three, four days a week or something, and that was a year. So that was enough for me to be a licensee. And  yeah, I just thought, well all right, I'll go and do that. Because I sort of was interested in property, but I'd love to say there was more strategy to it than that. It's embarrassing to admit, but it was pretty riderless.

Mortlock reflects on what he did after completing his studies at TAFE. 

18:09       I don't like to admit this. But I finished my TAFE on a Friday and I started a real estate job on the Monday. And so I timed that like a champion. I would have liked a couple of weeks off to be honest, but you know, I was kind of thinking, all right, I'm all grown up now. I better go and do something. And I had an illustrious, I think, 10 months real estate career. I would say that I categorically failed. Really because I still am, but back then I definitely was a very sort of paralysed introvert. So in running a business and doing podcasts and TV and stuff like that, you kind of have to either get over it or you will crash and burn, you can't sort of go to someone and they say why should I work with you?

19:01

You go, oh, I don't know, I don't really know. But I am an introvert, in my own time I'll read a book and I like to be left alone, but you can't be an introvert and be a really good real estate agent. I mean, maybe there are some analytical people that people just kind of want to work with because that's who they are as well. But it just didn't suit me at all. And there were some aspects of it where I kind of thought, I don't think that's the right thing to do. And then the boss would sort of say, but that's what I need you to do. I’m kind of thinking, this is a bit grim. So I ended up thinking, I like property. What is going to give me the property stuff that I like with none of the sales people, all that sort of stuff. And I ended up studying valuation.

19:57

I went back to TAFE and I was studying at night school and I think my girlfriend at the time said, you're a bum, how come you've got no money? And I thought oh I'd better get a job or she’s going to ditch me. She’s not my wife at the moment, but that's a side issue. I say at the moment, like I'm going through wives. And so yeah I was doing it at night school and I ended up getting a job in a quantity surveying firm whilst I was doing the night school stuff. And I got probably like maybe about 75% through and they changed it and they were going online instead of the classroom staff. And I kind of was a bit lazy thinking I don’t know if I really want to do that. The quantity surveying firm convinced me to change over to a bachelor of construction management and get credits for that. It turns out I got zero credits and had to start from scratch and I basically abandoned an advanced diploma of real estate being a valuer. And then I've gone back and I've done master’s of property and I've done five eights of that, which is again like deferred, because I've been busy. The business got busy. So I've twice tried to be a qualified valuer and haven't quite got there, but I'm sure I'll go back and do the master’s. I've only got three subjects to go. 

21:20    Third time lucky, I'm pretty sure you'll finish it. You'll get there. 

21:25  I think I started that in 2011 or something. And it's funny, I didn't do terribly well in the bachelor of construction management. My motto was PS get degrees, but with the master of property, I was more sort of like 90% plus average just because I was far more interested in it. There's much more sort of valuation, economics like property economics style, the nuts and bolts of construction. Like this is kind of the thermal massive hebel, you know, I just couldn't care less.

22:00     That is very technical. I haven't even heard about it. I don't even know what property economics would be about. I thought it would just be the look and working out the big macro economy of property, but obviously it's a lot more detailed than that.

22:13    The construction management degree certainly was, but I mean based on what I do today, we have to sort of estimate doing the tax appreciation sort of things. But really all of the main sort of information that I've got under my fast-growing grey hair, is outside of the degree. It's giving me the estimating fundamentals, but I learnt nothing about tax depreciation during that construction management degree, which is a bit weird because that's my qualification, but a big chunk of it is just that you couldn't get it there.

The managing director goes on to talk about the stage where he decided to delve into quantity surveying. 

23:24        I was studying a bachelor of construction management while I was working for a quantity surveying firm. So there were a bunch of us doing that degree at the same time. So that was good, we had a bit of comradery. So we were all pretty much doing full time work and full time study loads. So that was pretty epic, but you know, I didn't have much else going on, so it was just smashing it out sort of thing, get it done. I was thinking if I don't get a uni degree now it'll never happen. And I was lamenting not going straight to uni after year 11 and 12 straight away. So yeah, got that done. And then worked with that business and ended up being one of the sort of co-managers of the tax team. And then learnt my trade craft and that's when I sort of made the decision to move on with that arrogant notion that I thought I could do it better, you know?

24:14  You have, I think you've done very well, especially for that time. Because a lot of businesses usually in the first two or three years when they first start, don't make it. So you've already passed that stage and you guys are almost a decade into business, so that's great news.  

24:30         I can remember, I think it cost Marty and I about $7,000 each to start the business, so massive capital investment. And I can remember when we first got that back after a week or month or whatever, I was like, yes, milestone one hit. I haven't sunk money into a business that died. And then it just kind of incrementally went from there with a few funny things along the way.

Delving into his property investing journey, he goes on to talk about the first property he ever purchased.  

25:06    I purchased my first property in a place called Waratah, which is sort of right near the Newcastle uni area, which has done pretty well from a capital growth point of view for that reason. It's about, well depends on the traffic, it used to be a $10 cab fare to any restaurant in Newcastle, but now I've got an index, I think it might be $20 now. But under normal traffic circumstances, it's 10 or 15 minutes sort of into the CBD. And that was a place that I knew I wanted to get into property. That was the principal place of residence, but also I rented out the front section of it. So it was a two bedroom place that I converted into three. And I was kind of, I wouldn't say there was much sophistication going into that investment property, but I was interested in the stuff that I learnt in valuation, like the highest and best use about comparable sales.

26:09

If you're comparing two bedders to three bedders and you know, the three betters are worth an extra $80,000, well if I can make my two into three for 10 or 12 grand, then maybe that's going to work. So I was living with a flatmate and I bought that house and basically picked up the keys and said, all right, I'm off to Thailand for 14 days. And let him deal with a rat's nest that was found in the backyard, carpet that was probably a breach of his human rights. It was pretty rough. 

26:46     Okay, tell me about this story. This is getting interesting. 

26:50    I just kind of thought I'd never really bought anything much before, but in that week I basically bought a holiday to Thailand and wrote off a $10,000 car because my insurance had lapsed.

27:05

I missed out on that, so basically just set five to 10 grand. So this is not an inspirational financial story if you haven't got that already. And so I bought this property, which I think I paid $230,000. It was a two bed that had a weird sort of setup that I knew I could turn it into three, but I'd have to cut a hole in sort of like the front wall, which was actually external. So at the beginning, my flatmate agreed to sort of move with me into this new place. And he just ended up paying the same rent that we were both sort of sharing at this other place and in fairness to him that probably was not fair. It was a bit of a step back and I thought, oh the house is alright. 

27:46

But when I got back, he's like, dude, you don't know what I've had to deal with while you've been off in Thailand. And I'm like, well, some of the days we had to be in the back of a truck on a dirt road and he's like, no, don't even. 

He shares what happened at that particular point with his roommate and whether they resolved the tension. 

28:16     We're still mates. He ended up having what I can only describe as an illegal bonfire in the backyard to get rid of the jungle and the rat's nest that was in some sort of concrete, barbecue thing. And yeah thankfully he was there looking after that, he had a few parties with his mates and, there were a few cans lying around when I got back, but, you know, I kind of thought I’m balanced, you can do whatever, you looked after the place.

28:44

Him and I met because we were both dating sisters. I've got to clarify that, because I don't want it to sound like, oh, he really is from the country. No one was related in this story, apart from the sisters. So there was an older and a younger sister and he was dating the youngest sister and I was dating the oldest sister. And we met through that and ended up living together. And that was kind of cool because, you know, we all had sort of stuff in common. I sort of stopped going out with the older sister, so not long after buying that house, maybe it was the rats, I don't know, chicks don't really dig it, I guess that's what I learnt.

29:30

I think it might've been a little bit before actually, and so his girlfriend was coming over and at that time my two bedroom that I had turned into three did have three bedrooms, but it necessitated him coming through my bedroom to get to his bedroom. So it was kind of like all sorts of weird. There was like an impromptu towel rail that we put up as a bit of a privacy barrier. He really did put up with a lot. I should probably go and drop off a bottle of something.

30:01      I'm loving that story. You must be really good friends, always look out for each other. I'm pretty sure he is a very good friend. 

30:10      For anyone that sort of looks at someone like me and thinks life is glamourous or anything like that, I don't know if anyone does that, maybe just my mum, but it’s certainly been pretty rough. There was no silver spoon in the mouth and whilst I'm comfortable now, it definitely wasn't handed. 

Mortlock reveals if he still owns that property today after a disastrous turn of events. 

30:39     I wish I did. I still drive past and I think ah. But I ended up selling that for, I think it was around $350,000 or something. So I've worked at about like 8%, eight odd percent return per year. So that was pretty good, but I really wanted to keep it. But I ended up purchasing a property with my wife and selling that we could get a little bit further to what we wanted. In hindsight it was probably a mistake, but I mean there's sort of financial decisions and then there's life. And people ring me up sometimes and say, what investment property should I buy for tax depreciation? And I say, well it's an apartment in a complex of 600 with eight gyms and 14 pools and they’re like, well that sounds like a terrible investment. And I say, yes it is, but that's not the question you asked me, you didn't say what's a good investment? So I'm like don't do things just because of the tax reason or don't do everything because of finances. Maybe that’s my excuse for that.

31:42    But it's the truth though, because we all are human and we have some form of emotional lifestyle choices that we make, that’s the whole reason why we do invest into property is just a vehicle to get to our lifestyle or the choices that we want in our life. You know, if we didn't do that, then what's the purpose of investing into property? Is it just to have more money sitting in the back? I don't think so. 

32:00       I'm not really interested in money at all, I'm interested in freedom. Everything I own is kind of cheap and worn out. My one weakness is I do like European motor vehicles, apart from that I'm like blemish free. You know, and that doesn't make me a bad person, that's just my lifestyle choice. 

Mortlock goes on to share the moment where everything just clicked for him. 

00:18      I think in some ways I'm still waiting for things to click in place for me, but I haven't had any real sort of rubicon moments or transformative sort of things happen. But one thing that I thought about was when I first discovered that there was a whole world out there that I didn't realise. Now that kind of sounds obvious coming from a country boy from New South Wales. You know, like one day I'm going to leave this town. But when I was doing inspections, like doing tax depreciation inspections and going and looking at, you know, some expensive apartments in Sydney, I came to the conclusion that when you grow up, everyone is kind of like you. Like your parents, friends are sort of like the first people you see outside of your family or your friends and their parents, they're all kind of earning the same amount of money.

01:12

They all live in similar style houses. There's not a lot of diversity, certainly in the country. So I kind of thought that that's what everything was like. And then I got an insight, you know, walking into these places that were worth $10 million and I'd never seen a property, until I started inspecting stuff, I'd probably never walked into a million dollar place before and then walking into $10 million places and realising, you know what, I would love to live in their garage. Just the garage, you know, I would just be like that. I would ring up my mates and I’d say come around, you got to see this, this kid's doing good. And it just kind of made me realise that there's people out there that are just achieving mass success financially.

02:02

It wasn't so much that I became sort of transfixed by that. I just wanted to see what the opportunities were. And like I was trying to say before, I'm not sort of intoxicated by money. I'm intoxicated by freedom and choice. If there's any driver for me, it's that. And you know, money kind of has to be a calculation to get to that and it can appear like that's the actual goal. But for me, it's just like waking up and going today I feel like a baguette. I think I really want to be a hang glider, you know, so you can go and do that.

02:42      Totally agree. I think that's what we don't realise. Or we kind of get mixed up in all of this. Well, because you know, there's so much out there. There's so many people posting on Facebook and social media sharing that this is their life and so forth. But at the end of the day, it's not necessarily about the money just as you said, it's the choice. It's a lifestyle, things that you can actually get to do with whatever you make for the money. And at the end of the day, money is just a by-product. It helps us be able to transact and that's it, you know, but if you can actually focus on what it is in terms of the goals, whatever you want to do in your life, then that's really what you've got to do, is just figure out how to actually do that in the background. Because once it's been set and done, you've reached that goal. Basically it just sits there and just happens in the background. You won't even notice that it's there.

03:25     Exactly, and like I encourage people to come to the view that social media is a lie. You know, like people put their curated best lives, right? Like I've got pictures on my Instagram of me duct taping one of my favorite shoes up, because I didn't want to throw it in the bin. You know, like I'm trying to buck the trend and show what my life  is like, it's not glamorous at all. And I posit that maybe bits of your life aren't either. Let's see that. I want to see what's real, you know, I’m sick of all these attractive people with their arms sort of folded in front of a lear jet going ah, this is my Wednesday. I'm like, come on, don't you just wake up and hate yourself, sometimes, maybe that's just me.

04:09    Well, it's true. Social media is turning so much around, especially Facebook. There's a lot of impact in that, making it look as though it's glamorous and stuff. And then when you read it and go, oh, come on, ou know, that's not real. It just makes you feel even worse because you just want that. Or you just can’t have it at this point in time. 

04:27     I worry about kids that aren't sort of developed enough to understand that. And it feeds into this kind of consumerism and the planned obsolescence of things like iPhones, you know, that stuff doesn't last and you've got to get to the next thing. Otherwise you're going to get crap floored at school.

04:51       They do not make anything as good as they used to, like devices die after about two or three years or so. And they force you to do an upgrade. There's a reason why they do that because otherwise you won't spend more money on the same thing, washing machines and all the white good appliances after a period of time, they just die. And then you have to go buy it. Whereas when I had my one that was like 20 years ago, it lasted for 20 years. I'm like, why don't they make them like the way they are?

05:16      Soon our toasters will be Bluetooth. And I think as you go to the checkout and you go to place your Bluetooth toaster on the counter, just maybe pause for a second and go, why is my toaster Bluetooth? What is happening to the world?

Mortlock goes on to talk about his portfolio and what he’s currently planning to do.

05:54       I'm envious of a lot of the young guys that you see around and you probably have interviewed a lot of them that are, you know, getting to their early twenties with six, 10 properties or $5 million of equity or whatever. I think some of that is also a little bit of a beat up and I've sort of pushed against the number of properties as being a goal, because do you want 10 properties in West Wyalong or Mosman? Like they're not the same, right? No disrespect to my brothers and sisters in West Wyalong. But yeah I started pretty late. I kind of subscribed to I guess the growth philosophy to begin with and sort of realised, well, yeah that's cool, but you're very quickly run out of capacity if you're chipping into your pocket each day.

06:48

I guess I've always earnt maybe a little bit more than average, but not by a tremendous amount. Like I don't have the capacity to just keep chipping into the pocket. So from there I kind of went to the cash flow side but more from a balance. And one of the biggest things that I've learnt, and there's some great people that I've spoken to that probably have coined this better than I have, but it's like fitting the property to the portfolio. So like at any stage in the portfolio, you're a bit too negatively geared, so you need something that's a bit more cash flow or you are heading to the end of your portfolio. So you want to kind of settle down and focus on the commercial assets that are high yielding and that sort of stuff.

07:34

My wife and I made a decision that we weren't sort of going to share the numbers and the net wealth position and that sort of stuff. But I have a very modest portfolio, certainly in the growth phase and will still be for I imagine, you know, another 10 or 20 years. I'm getting old, but you know,I still got a lot more work. I've aged terribly. I'm only 38. I don't think that's terribly old. And to be honest, the focus for me personally has been much more on the business. So I've wanted to be careful to not throw all the eggs in one basket and diversify. So in many ways I'm building the business as an asset, not with the idea that I will sell it or anything like that, but it has a value.

08:28

And then there's the property as well. And they're two very different things and one can help with the other. Certainly the returns in the business were better than I could have achieved with property just because we've had such great growth since we started. We managed to get on the fast 100 lists a couple of years ago with an average growth over four years of 41%. So there wasn't really an opportunity for me, at least with my rudimentary property investing skill set to go and get a return like that. So I've definitely sort of focused more on that to the detriment of property, but it'll enable me down the time to be able to purchase property outside of the equity growth. So that's a great thing with building a business. We're still in the growth phase, so it's not a hugely profitable enterprise because we're thinking more into the future. But that's certainly the goal where I won't have to wait until revalue to buy a property. I could just be buying properties from the dividends. So that's where I'm at at the moment.

09:31      That's fantastic. And I think the great thing is that you still are in touch with property because you are actually involved in that industry as well. So you do get to see and keep up to date what's happening in the market. So therefore jumping back into buying more property or investing in more properties can be very easy for you to do anyway, which is a great thing because you want that complimentary skillset, especially in your area.

09:50       Of course interviewing people on my podcast about, you know, buyer's agents and development experts and that sort of stuff. I'm constantly sharpening the tip of the spear just by staying in touch with those people. Of course, we have relationships with referrals as well. The whole other half of our business is really just working with developers and development projects, doing feasibility and progress claims for development. So we're seeing things pre-construction and coming out of the ground to completion and then post post-construction with the tax side of things. So we're plugged in pretty well to that. And there'll certainly be some opportunities and some connections and joint venture things that will hopefully fall in the lap. At a point in time where I've got the cash to make the best advantage of it.

Mortlock goes on to share some things quantity surveyors can do for people to help them with investing in property. 

11:04       There's really two sides I would say. In our business, certainly there's the traditional construction cost estimating. So that would be how much is it going to cost me to build X, Y, Z, right? So you might do that because you want to do a major renovation or you want to build a house or you want to go to a bank to get financed to do a development. So quantity surveyors are our special skill set for construction cost estimating. There's no other industry that's better qualified to estimate construction costs. So anything around estimating construction, that's a big part of it. Of course, post construction. We're doing things like replacement cost estimates for insurance, and probably the thing that people would see more advertised and as a property investor is the tax depreciation side of things. And that's really my sort of special skill set on the residential, commercial and industrial side.

12:00

The advantage of a tax depreciation schedule for a property investor could be simply put as you pay less tax. So when you buy a property, it has a couple of different components in it. There's the land and then there's the improvements to the property. So we don't provide a market valuation, which includes land. We're only looking at what was the cost to build what was there at the date that it was built. And then you can claim deductions based on the wear and tear of the structure and then the fixtures and fittings inside where they qualify. And so essentially it's just a report. I laughed to someone the other day. I said, I'm basically in the PDF business, right? We just sell PDFs, PDF reports, you know and this tax depreciation PDF, I mean, we can give you a printed run if you want, but it's mostly PDFs.

12:53

It just says in this year for this property, you've got $11,000 worth of tax deductions, for example. And if you're on $100,000 you're going to pay $24,000 of tax. If you're on $89,000 which is a hundred minus that 11, you're going to pay about $20,000 of tax. Obviously the rates all change, do your own research, but that's about a $4,000 saving for a six or $700 report. So that's the power of depreciation. 

13:25 That’s fantastic, and when should the people get the depreciation and reports done? 

13:27        I always say today or yesterday, if you can manage it. The reason why is because from when we started, we collected data pretty forensically because I wanted to tell stories about property investing in Australia. And personally, I was sick of quantity surveyors  saying on average, we get five to $10,000 worth of deductions.

13:49

I'm like, well, that's not an average that's on range. So I started collecting that. And once we got to a thousand reports, I said on average we get $9,183 and I shared two decimal places just to show that I was paying attention. Right? So we've collected data from the date of the settlement to the point that people actually engage us to prepare a depreciation schedule and it's nearly four years on average that people wait. Now if people don't know, you can actually back claim two financial years worth of deductions, right? But if you wait longer than that, you can miss out on those deductions. And we found that 6.7% of all of our investors actually wait too long. And the average amount that they lose is about $20,500. I think it's $537, that's a big chunk of cash.

14:45

And depending on your marginal rate, it could be six or eight grand out of their pocket. So that's why I say don't put it off, talk to a quantity surveyor, get a free estimate. I'm pretty sure every quantity surveyor will give you a free estimate, right? It's not like a sales pitch. You see agents still saying, you know, free market estimates in your street this Thursday. Ring them up, they'll come anytime, right? They want listings, we're kind of the same you know, we'll do a free estimate. And I don't think that there are any corner surveyors out there that would recommend a schedule that's not beneficial either. So it costs you nothing to look at it, send it to someone like myself and say, here's my property. You can see basically all the information you need from a realestate.com listing. Is it worthwhile doing it? Yes, no? And if it's, yes, then do it. Right? Because paying you more than what it costs, it's a pretty good product to sell.

He goes on to further explain whether you should organise the depreciation schedule shortly after settlement of a property and whether you need to update it regularly. 

16:05  We recommend basically getting it at settlement, and often before the tenants move in is a great time. It's just one of those things, you're doing your best and your building and with settlement, get it done straight away. The main reason why we used to say that is because it was taking a snapshot of the property. And if things changed over time, so you rip some things out, you might be able to claim scrapping on those assets. Because of the legislation changes in May, 2017, that kind of old system doesn't really work anymore, but I still recommend people get it done straight away, just so it's not something that they forget and that they don't become one of those statistics I was talking about before, there was a lady in our study who bought an apartment off the plan who waited 16 years to contact us.

16:52

I would estimate that's about $65,000 worth of missed deductions. And that sort of stuff keeps me up at night. Maybe shows I've got a bit of a sad life, but yeah, and once you get a depreciation schedule, you don't need to update it every year. Pretty much a depreciation schedule, all the major companies will do a 40 year schedule. That's really the maximum life of a built structure. So say a brand new building has a 40 year effective life. That's why we do 40 years schedules. And you wouldn't need to update that report unless you're doing major renovations. So if you add like a split system, air conditioner, there's no estimating required. You can give that to your accountant and say I bought it on this date, this month, and they can plug it in. Or a lot of companies will do free updates if it's one or two items as well. We certainly do that. 

17:48     In a situation, I'm asking this for myself as well. If I had a property, which I've recently renovated and I didn't do a depreciation schedule, will there actually be a big change in terms of that, have I potentially missed out a year's worth of depreciation that hasn't been affected after the renovations that may change as well?

18:11        It's a very good question, it depends. It's always annoying to actually give an answer like that but I'll make it brief. If you spent say a hundred grand on renovations, the total depreciation that we can claim over the life of that improvement is a hundred grand, right? We can't get you more money, but if you spend a hundred grand and it includes carpets, blinds, oven, cook top range, hot water system, then those are plant and equipment assets that depreciate at a higher rate.

18:39

You want to tease those out, apply those higher percentages. Otherwise instead of waiting 40 years to get your deductions back, you might be getting all of that money within eight years or in some cases one year, right? So that's the real value because people might buy a brand new house or build a brand new house and they say to me, why do I need you to estimate the construction cost when it says here on my contract, but it doesn't say that you got $4,000 where the carpet or $800 worth of cooktop. And builders don't tend to itemise major renovations based on the commissioner of taxation's effective life categories, that's not their special skill. So if you know what you're doing and you know, okay, well, it's going to have these plant and equipment items in it.

19:27

There's really only two pages of legislation in that document, that are just mentioned as planting equipment. You could actually say to your builder, how much have you spent on this? But then on top of that, we can actually include them as total installed cost. So if you're paying $800 for your cooktop, that might just be buying the item, not paying for an appropriately qualified person to install that. So that's where it becomes problematic. So I would say if it's a bigger renovation or you don't have a breakdown of those things, then it's worthwhile getting a report, but a good quantity surveyor should be able to help you through that determination. And I relished the opportunity to turn people away because they end up becoming raving fans because you've done something honest you've said, go away, I can't help you with this because I can't sleep with myself. I can't live with myself if I'm charging you for this and I'm not doing any value and they will come back and say, oh, well, what about this? You know, they're almost excited to give you money. It's kind of a weird thing, right? And you know, I thought everyone was like that in business, but you know, there's people out there that just aren't doing the right thing by people. 

20:35    That happens, it's always that 5% or whatever it is that's out there that just doesn't do the right thing. And it makes it a bad name for the rest of the industry, unfortunately. It’sto be adhered to, and I hope that for listeners out there, you would actually be able to get them to look at depreciation. Because it's such a big component that doesn't really get talked about very much. I mean we talk about finance, we talk about where to buy property. We talk about renovations and structuring, but we never seem to go into too much about going to the bank. Because it's not a topic that people actually go, huh, that’s something we need to do. But I think it should be standard after settlement that they do that because there's so many deduction statements that can be claimed. It's only after the accountant and the financial you go, oh, where's your tax depreciation schedule?

21:22       If you follow me on LinkedIn or Facebook, you can't get away from tax depreciation legislation. But you're right, we don't talk about it, I'd talk about it all the time and I've done that for about 15 years, but you know, not everyone's paying attention because it's boring, right? And that's a real challenge for me is to take tax legislation and make it something that people want to listen to, but a better way to pitch it is sort of like free money. I don't think Facebook would allow this sort of advertising. But yeah, it's not mandatory, but if you don't do it, you're going to pay more tax than you need to. So that's why you should, you don't have to learn everything about it, but you should know what it is and have a person, I know you always talk about property investing, being a team sport, someone on your team should be a quantity surveyor.

Mortlock delves into the reason why he started investing as well as building his business. 

22:34     With property it started off as one of those things, we've talked about it before, people just kind of think, oh well, buying property, that's a good thing, right? And I should do good things because that's what you're supposed to do, right? You know, buying a property is planning for your future and putting more super away is good and all that sort of stuff. So I didn't have a tremendous amount of sophistication behind it in the beginning. To be honest, there's an argument to say, I still don't now. But after seeing the results of investors that are coming back and buying multiple things and you can look at stuff that they've bought and you're thinking like, wow, that's way under market value. And I certainly saw heaps of that stuff with fund managers that buy a building for $16 million and five years ago it was sold for 22.

23:23

You're like, wow. I guess you just kind of wait, renegotiate, a couple of leases and there's your few million bucks. And that kind of was interesting to me, but the goal really evolved to being more about freedom. Like I mentioned before, just the ability to do anything that I want to do as a passion project and be able to provide for the family as well. And I'm just passionate about helping people, unfortunately, I'm not clever enough to sort of be a heart surgeon or anything like that. My special skill is helping people save on tax and yeah that's boring and it's not going to win me a Nobel peace prize. But I like to see myself as a small part of people trying to do the same thing. Most investors want to get into property because they want to be able to spend more time with their family or take them on a holiday. I think it's kind of like an altruistic thing. It's not that sort of typical viewpoint of the greedy landlord. I don't believe that rhetoric. So I just see myself as a small part of helping people to achieve their financial goals.

He goes on to talk about the kinds of resources that have helped him along his journey. 

25:13     Being in the property game sort of day in, day out, I don't consume a lot of property media to be honest. Like I have a lot of property friends and I read their stuff and interact with them and comment and that sort of stuff, but for people that are outside of the property game, and if I wasn't in property, I would be consuming this sort of stuff. There's definitely a lot of really good podcasts out there such as the one we're on right now. So if you're listening to this, I think you're on the right track. And I'd encourage people to go through the back catalogue as well. And you can find your own guru there. So podcasts like yours, it gives people an opportunity to find someone that they relate to. I like their sort of drive and their mission, their strategy or their approach.

25:58

I think you can find those people and everyone's punching out quite a lot of content, so you can follow these people. And I encourage people to reach out as well. Like when I started, I kind of thought, you know, these people are on a pedestal and it's a bit like, you know, don't look Brad Pitt directly in the eye because he will have a tantrum or something. That's unfair to Brad, but you know. I've got no idea what he's like of course, but you know, I kind of thought it might be a little bit like that. So I would definitely recommend your podcasts. I listen to the Elephant in the Room’s stuff as well. The Property Planner, buyer and Professor, I always get that name wrong. But those guys are good resources as well.

26:41

I follow Pete Wargent’s stuff. He's a daily blogger, he absolutely loves it. He's a crazy person, a good friend of mine. And you know, there's plenty of good books out there as well. So it's not hard to find stuff to plug in there. And from I guess, a business mindset sort of thing, I'm sort of pretty self-driven. So I guess I like the factual learning stuff. So I'll sort of think, ah, you know, Sunday afternoon, I really want to learn Jae Seung because I want to figure out if we can pass an API from the backend of our software. And I'm probably speaking your language. I'm not actually capable of writing Jae Seung yet, but you know, give me a bit of time, but I've been you know getting into some of the Gary Vaynerchuk stuff.

27:29

He's not like my style, but there's some really interesting stuff that he's got out there, you know, I've just read Extreme Ownership. And that really resonated with me as well. And you know, just looking at people that I kind of find quite inspiring. Like I read Elon Musk's biography and you know, there's a lot of kooky stuff going on with that dude. But the way that he is, is disciplined and driven, like when people say, oh, my mission is to grow my business to $10 million or whatever, his mission is to put people on Mars. 

If he had some time to reflect on his past self 10 years ago, we find out what he would have said to himself.

28:48      It'd probably be something that you're not allowed to say on this podcast, perhaps. I would sort of say maybe like 10 years ago, I think I was on the straight and narrow. I started the business about 10 years ago. I was pretty keen to give it a red hot go, but I probably would have said to myself to be patient and to celebrate the wins. So in business, I've kind of set a bar to achieve thinking, like that would be amazing if we did that and then sort of get there and the amazement dissipates, and you look at the next one and that kind of, that's not a real good psychological approach. And I got to the point where I needed to sort of calm down and I took up a hobby of growing chilli plants. And then it seemed like in an afternoon I had 76 different plants of like 18 different species and they were all catalogued and I had the top 10 artists in there in the world. I'm like, this is not why I started doing it. That's exactly the wrong thing. You've gone and done this again. So I think just to calm down a bit and celebrate the wins.

29:59 That's great advice, hindsight's always good too.

30:03

Going back like 15 or 20 years, I would say, what are you doing son? Get off your backside. I think because I had a certain dream that got smashed, I just became a little bit sort of rudderless and I was just drinking too much and having fun and doing all that sort of stuff, which I think everyone should do. It's a bit of a rite of passage, right. I'm not advocating binge drinking. I don't want to get in trouble, but I think I need to say to myself, all right, well, like sure, have a little bit of fun, but result is kind of compound. So if you start doing something now, you're going to be so much further down the track in 10 years then if you start in five years. So I'd probably give myself an uppercut and a couple of curse words for sure.

30:51       I didn't get to ask you, what inspired you to want to become a fighter pilot? 

31:01      I just was really impressed with aviation. Just absolutely loved it. I don't know what it was, but it just sort of seemed like the extreme sort of personification. That's not the right term, but it was freedom, right? It was just freedom. And I really sort of got into the military style stuff. Like I really sort of bought into the I guess the brothership and the brotherhood and all that sort of stuff. And you know, the technical side of things, I ended up learning all of the different power to weight ratios and operational ceilings for Russian jets and just consumed all the data and that sort of stuff. And I just kind of thought that is cool. Like if I could achieve that as a goal, I would be like, yeah, Mike, you've done this, well done son. 

31:55        Well never too late.

31:58       I think it almost certainly is. I don't know if I'd fit in a seat right now, but I'm really quite happy doing what I'm doing. I think I alienate people saying that I'm passionate about tax legislation. It's not that, it's more working with the people and working with the great team and my business partner and the guys that we've got here and the refer as they put their faith in us, like I have a blast and I never wake up thinking, oh, Christ that thing again. So whatever, that's the case, then I'm enjoying it.

Last question for you is how much of your success is due to your skill intelligence and hard work and how much of it is because of luck?

32:47     That’s a good question, I don’t really feel super lucky. I don't feel like anything's fallen in my lap. I think from a business point of view, there could be someone that rings up and says, you know, Mike, you're a great guy. Here's all my work, and I own Western Australia. You know, like nothing like that has happened before. But you know, I would really like to sort of say that life is one big lottery, really just being born.  I don't want to talk about the mechanics of family planning and that sort of stuff. Different sort of show. But you know, your odds of being born are so low and you know the odds of being born in a country like Australia. And sure, there are people richer than us, but I had a happy childhood.

33:37

We didn't have much, but we had enough, I had the opportunities to go to school. So there's an amazing amount of luck to just be born with the privilege that I have. Other than that, I wouldn't say that it's like skill or any particular intelligence. I don't think I'm a genius by any stretch of the imagination, but I'm bloody competitive. You know if you want to go to the mailbox, I’ll race you. And that's why I had too many chilli plants. And that's why I think we've been able to grow the business. Of course, I'm just one part of that, but I think it's more just bloody mindedness and discipline and competitiveness.

Thank you to Mike Mortlock, our guest on this episode of Property Investory. 

If you want to hear more about his journey and get a copy of the show notes on the website head over to PropertyInvestory.com/notes.

The show notes will give you the inside scoop on the little gold nuggets of wisdom all our guest's share from their backstory and all their overall strategies and philosophies. Plus, you’ll get a copy of their advice broken down and shared in a quick and easy-to-consume format!

Just head over to PropertyInvestory.com/notes and download it today.

Thanks for listening!