Profiting from property psychology: Q&A with Ben Kinglsey

I was always interested in financial security and independence from a very young age. It was all part of wanting to get ahead early. My philosophy was that the sooner you start building your wealth, the better.

That led me to investigate all different types of investment opportunities, from trading shares to general investing. When I came across property, I found it comforting that residential investment success was based on low volatility and the long-term performance of the asset class.

I was studying and working part time as a window cleaner while I saved my first deposit. I also worked in a commercial furniture shop on my weekends, afternoons and evenings (whenever I wasn't studying). A large portion of my earnings went into savings. When my grandfather passed away, I inherited $10,000 which helped with the deposit as well.

I made my first purchase at the age of 23. I bought the house across the road from mum and dad, in the northern suburbs of Victoria. Obviously just buying the house across the road is not an ideal strategy. At the time, I had very little experience and knowledge about what I was doing.

I paid $120,000 for that property and moved into it for a short period of time. Then it became a rental property long term.

Q. What was your biggest investment mistake?

In regards to that first property, I got what I thought was good advice at the time from my accountant. I wasn't working in the property industry at this stage, I was in the tourism sector.

My accountant’s advice was that I would end up paying more tax because the property was positively geared. He suggested I sell the house and use the proceeds of the sale to buy in the Sydney market.

With the benefit of hindsight and what I know now, I should have possibly renovated the kitchen and bathroom and got it revalued, then used that equity to buy a property in Sydney. If I had gotten a depreciation schedule on the renovation, I might have been able to minimise tax and potentially make the property negatively geared.

With that approach, I would have been able to hold on to my old property and bought a second one. But I took the advice of that accountant and sold the Victorian property to build in Sydney in Alexandria.

I sold my first house for around $167,000 from memory. Some 20 years later, that property is now worth over $550,000 un-renovated. I sold it when I didn't need to because I got bad advice.

You need to understand how an owner-occupier makes decisions because ultimately, they are the ones who are buying on emotion

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Q. What is a common misconception Australians hold about property?

It's not about the number of properties you hold but the actual value – a lot of people get this wrong. At the end of the day, the value gives you your capital gains return but it also gives you your income return. If you have high-value property, you can charge premium rent for it.

Today, I have a multimillion-dollar property portfolio and it only has four properties that my wife and I have purchased. Each property is worth a substantial amount.

Many people have no alternative but to buy high-yield properties because their cash flows dictate that. For other people, they may be chasing strong long-term capital growth properties because they have strong household cash flow surpluses.

The message really is you don't have to have a lot of properties if you have good surplus of income. You don't have to keep chasing these high-yielding properties to get a passive income and an early retirement.

Q. How do you identify properties primed for capital growth?

I have been doing this both personally for 20 years and professionally for 10 years. In my experience, the key thing is understanding the psychology of the buyer.

You need to understand how an owner-occupier makes decisions because ultimately, they are the ones who are buying on emotion. As a result, they are the ones who push the values of the property higher over the long term because they will pay a premium to live in specific locations.

I often talk about the need to have a keen interest in human behaviour. I'm looking at people who are prepared to pay more for certain properties on the basis of lifestyle, status, networking opportunities, schooling or commuting times. They are some of the big drivers I look for if I'm chasing long-term capital growth.

A lot of people think that most properties are investment properties but I think only maybe five to 10 per cent of properties actually make good investments. The rest are not investment-grade.

Just buying any property or just buying in your local area and expecting to get an automatic return is not going to work. The asset selection is absolutely critical and that is primarily area selection first and then property selection second.