Investor Profile: Success to Failure to Success with Ronald Tan

[youtube id="lGUH0anJhKU" align="left" mode="lazyload" maxwidth="500"] Today we talk to Ronald Tan about his investment journey. From his early successes, to being swindled by a developer to investing again and doing it right this time around. One of my absolute favourite things to do when running On Property is to talk to my listeners, talk to my readers about their investment journey. To hear about the successes, to hear about the failures that they've been on. Today, I have for you a really exciting investor profile with an investor named Ronald Tan. Ronald has been through so many different things over his investment career, which has spanned I think it was something over 20 years. He's had great success in his early purchases to being swindles by property marketers offering him overseas property. He's had some great successes, some great failures and then come back and had some successes again. So it's really great to hear this story with Ronald and I think it's going to inspire a lot of you. Now, please note that there was a bit of lag between the conversation over Skype so sometimes we do interrupt each other a little bit or if there's longer than average pauses, that's just because of the delay in terms of the signal going through. A really great interview. Thank you so much, Ronald, for coming on and sharing your story and I hope that this inspires you guys. Ryan: Hey Ronald, thanks so much for coming on today. Let's go back to the beginning your investment journey. When did you first invest in property and what made you decide to invest in property in the beginning? Ronald: Okay. I guess this started off probably a few decades ago when I was a lot younger and I noticed a lot of my uncles – I come from Singapore – they were going through a period of exponential property growth. Probably fueled by speculation and I guess in those days when the overall property market sort of increases, it's benefit those people who enter the job market earlier, obviously. In those days, everybody is saying, "Oh, you should buy property because property always makes you money." Ryan: It doesn't sound too different from today, really. Ronald: Yeah, yeah, it is. For the un-initiated, I guess. So that's how I first went into property. The first investment property that I bought apart from my own home was basically with the intention to just rent it out, but at least in those countries, it is still more or less positive cash flow, so it's not too bad. Ryan: So was your investment property in Singapore? Ronald: Yes, it is. Ryan: Okay. And do you still own those properties today or have you sold out and you're now in Australian market? Ronald: No. I sold that out a long time ago. In fact, slightly 2 years after I acquired it. I think I bought it at $325,000 and sold it 2 years later for $520,000 or something like that. Ryan: That's pretty good. Ronald: Yeah, that's pretty good. And then, I made the next mistake after that. Ryan: Okay, so you had a very successful first one. And then, you said you made a mistake on your second one. What happened there? Ronald: Well, I guess, because at that time, my ex is the sort of person that likes to spend money. So if I have the proceeds of the fist property, I thought I better buy something else before it gets spent. At that time, I have intention of probably in the future of migrating so I happened to go to one of those exhibitions where the marketers was presenting foreign properties for sale. And then I bought one of the plan there. Obviously, the price was highly inflated. Ryan: Yeah. Which country was this in? Was this in Singapore still or was this – you said "foreign investment", so was it in another country? Robert: The property was in Perth, actually. So, I was buying it from Singapore. It was just a 4x2 built by a company called [inaudible 4:56], which I think about 15 years ago, they've stopped operating as a builder. I think the price is probably maybe 40% more than what you would have paid if you were to buy locally. Ryan: Oh no. That's horrible. Is this standard? Does this happen overseas? That marketers will go overseas to Singapore, to China, etc. and market these Australian properties at extremely inflated prices? Does that happen a lot? Ronald: Yes. It happens all the time. Obviously, how it works is that this marketers will link up with a local real estate agency. Obviously, they need the local contact to setup all the fancy brochures and the exhibition facilities and things like that. I mean, being marketers, they always promise you a lot of things and they say, "Oh, the freeway is going to come by in 2-3 years." and knowing what Australia is like, you know, 3 years can become 10-15 years. What they never happened in [inaudible 6:19]. Ryan: Oh. Well, that's sad to hear. I'm sorry that you got, basically, conned by marketers. I think people should learn from that and be very careful. When someone is promising you the world. If it's too good to be true, it probably is. Ronald: Yes. Definitely, yes. Ryan: So you purchased that property that was you said you paid over 40% more than what it was worth, how long did it take you to work out that you had made a mistake? Ronald: Oh, very quickly. Obviously, as part of the sweeteners, because they over-inflate the price, they can afford to give you a free ticket to come to Perth to look at the property when it was completed. So, when you come over and then you look at what they actually were marketing those properties for any locals here then you know that it is way too much that you paid for. Ryan: And how did that feel to come to Perth and to be like, "Okay, I've just been taken for a ride, basically." It must have been hard for you. Ronald: Well, yes, especially when you were trying to plan the migration to the country and you sort of know that you can't cash out at the moment because you tend to lose a fair bit of money. So the first 2 years when I first come to the country was a little bit hard. It was in 1996 where job market wasn't very good as well. I think with that property, they also promised you a first 2 years renter guarantee and, as you know, with the inflated prices, they sort of subsidized the rental. That's why they can give you a high rental, but after the 2 years, obviously, rental then falls back to what the market was paying at the time. Which is way below your cost, so it's basically then negatively geared. Ryan: Yup. So do you still own that property today or did you eventually sell it to get rid of it? Ronald: I actually hold it for 2 years because when I first migrated, I didn't really get any proper employment. So that was a little bit tough. Eventually, when I can, I sold it. But it was sold, obviously, at about 40% less than what I paid for. Because the market at that time was pretty bad because of bad employment. It's some kind of similar to what we are experiencing in Perth at the moment. Ryan: Yeah. I can imagine wouldn't have the courage that you had to actually go ahead and sell a property and lose 40% of the value. Most people would kind of just hold on to it, hoping it will go up in value over time. What motivated you to say, "Okay, I'm going to sell this property." and how did you move on from that? Ronald: I guess, for me, that has been the story of my life. If I feel that going forward, there's no quick gain or anything in the foreseeable near future, then holding on to a property like that – that is negatively geared and you don't have any proper income to gear it against, is not a good decision. It just increases your loss. So rather than, keep doing that, sometimes it's better to just draw a line in the sand and just write it off. Ryan: And then, how did you move on from that? How did you get back into the market after that? I'm guessing that you learnt a lot from that experience to never go through that again. Was your next purchase, I guess, a more educated, more thought out one? Ronald: Yes. From that lesson, I always advise my friend, if they intend to buy a property in a foreign country, forget about the marketers. Don't ever go to exhibition. Rather, fly over to the country, especially if you have a friend there that is doing the scouting for you. And then, look at it yourself. Do your research and pay for what the local usually pay for. Ryan: Yup. And I think that's good advice. Ronald: After I sold that property, the next one I acquire was when I have some proper employment and it was the year 2001. Where if you buy almost anything, you'll make money. So I bought 2 properties there. A 4x2 house in the suburb in [inaudible 12:08] and a 2x1 apartment in Wembley. I kept that for a few years and make some money out of that, not on the apartment. The apartment market sort of tell me that, "Oh, yeah. There's too much of a hassle." because most of the owners of the apartments are investors and whenever the strata management wants to change any bylaws, you can never ever get enough people to attend the meeting for the quorum so that was a little bit of a waste of time, I guess. Ryan: So did you learn from investing? So you purchased one house, you purchased one apartment and you found the house much easier to manage because you could make decisions yourself. You could do what you want with it. Whereas with the apartment, you didn't really have control because you had to wait for other people's decisions and those people might not even turn up at meetings. Ronald: Yes, that's right. Basically, yes. Ryan: Does that mean, do you not invest in apartments now because of that experience that you've had? Just too frustrating? Ronald: I wouldn't say that, but I think based on my current knowledge and analysis, probably we are going into a period where there's oversupply of apartments because there has been quite a fair number of new first time developer coming into market.