$100m-plus portfolio, but no house
$100m-plus portfolio, but no house
With the backing of a property portfolio worth more than $100 million, commercial investor Oscar Ledlin certainly has the financial capacity to buy himself his dream home, but owning his own house is not part of the young entrepreneur's ambitions.
Instead, Mr Ledlin intends to continue to develop and amass commercial and industrial assets as he builds his wealth, while renting the house he and his family live in.
The 28-year old’s rapid rise is a remarkable story, which started when Mr Ledlin entered his first property investment at just 21 years of age.
At that time, Mr Ledlin was working at his father’s concreting business part-time while earning a business and commerce degree at Monash University, and while he grew up on construction sites, he decided that being a concreter wasn’t part of his future.
To get out of concreting, Mr Ledlin said he decided to pursue property development, having been inspired by the transformational process involved in the jobs he worked on with his father.
He had saved around $50,000 from working while studying, and decided to attempt to acquire a duplex site on the Mornington Peninsula, not far from the family home.
“I went to the bank and said ‘I’m here to borrow some money, I’ve found a development site and I’ve got my deposit, which was just over 10 per cent, but the bank said I couldn’t show serviceability,” Mr Ledlin told Australian Property Investor Magazine.
“I was devastated. At the time, I didn’t actually know what serviceability was, but the bank manager went on to explain to me that it was based on my inconsistent income from my part-time and casual employment.
“So what I did was I left the bank, went and registered Ledlin Developments Pty Ltd.
“I’d just turned 21 and thought I was the smartest man in the world, and for whatever reason I thought I could go to the bank and speak to the business relationship manager and ask for a business loan instead.
“I went back with a two-day old company with no trading history, and of course had my finance application denied again.
“This disheartened me a little bit, but I pleaded with the bank to give me some advice and they said I could use my deposit and get someone else to show serviceability and go guarantor on the loan.”
Mr Ledlin then approached his father to act as guarantor, who said he would partner with him on one condition - that he invests into commercial property, as he could pour the concrete and save on the development costs.
“Residential was definitely where I thought it would go, only because I hadn’t considered commercial,” Mr Ledlin said.
“As a kid, residential development and investment was all that I had heard about and all that I had read about, and I hadn’t had exposure to commercial property.
“Now, having extensive experience for my age in the commercial sector, I quickly fell in love with the commercial side of property.
“I’m very entrepreneurial-minded and I really enjoy understanding how we can better design commercial properties that are more functional, that perform higher for their commercial use and achieve a better commercial result for the occupant.”
Once he fell into commercial development, Mr Ledlin said he has never had any interest in exploring residential development or residential investment.
He said the vast array of different assets under the commercial property umbrella, ranging from offices to warehouses to shopping centres and service stations, created several advantages for an investor.
“Generally speaking for commercial property, the greater yields are what’s most attractive and what’s also attractive is the way that outgoings are the responsibility of the tenant rather than the landlord,” Mr Ledlin said.
“Under a typical commercial lease all the outgoings are paid by the tenant - owner’s corp if applicable, for standalone buildings there is water rates, council rates and all maintenance requirements are settled by the tenant rather than the landlord so the net yields are just grossly higher than they are in residential.”
While many Australians believe that commercial investment and development is a complicated process, Mr Ledlin said it was not drastically different compared to residential investment.
He said that purchasing a property and entering a sales contract is almost identical to a residential buy, and then leasing that property to a tenant is also a remarkably similar process.
“The only differences are the returns are much higher in commercial property and the tenant pays a lot of the outgoings, if not all of the outgoings, and the lease terms are longer so you have to lease a property less often,” Mr Ledlin said.
“There are three pillars that I really advise people to explore when considering any commercial property investment.
“The first one is the rental yields and the second one is the lending criteria - from the outset it is good to get a solid understanding of the funding criteria.
“You need to really understand the funding requirements of your chosen lender for that particular asset.
“Typically in commercial property the deposit amounts are slightly higher than they are in residential, but I think it’s also important to note that the median house price in Australia is getting close to $900,000, while there are commercial property investment opportunities for much lower than that.
“We are bringing out a new venture where we are about to launch a commercial property product for $99,000. So while the percentage might be higher for the deposit, the barriers to entry in commercial property is actually much lower.
The third pillar that Mr Ledlin said he advises to explore is vacancy rates for that particular asset class.
“There are a number of different property assets that fall beneath that broad umbrella of commercial property and the particular asset classes that Ledlin focuses on have a 1 per cent vacancy rate in southeast Melbourne," he said.
“They are incredibly tightly held commercial properties and very low risk additions to any investor’s portfolio.”
Mr Ledlin’s development company, Ledlin Developments, specialises in small warehouses and suburban strata offices, while he retains several properties at each business park he develops to add to his portfolio.
The company is gearing up to launch a new commercial-industrial product called a flexi-unit, which is contained in a complex of mini warehouses but also includes luxury fittings such as polished concrete floors and LED lights, while communal facilities, co-working spaces and bathroom facilities distance the offering from a standard storage or warehouse facility.
“It’s like a hybrid between a mini warehouse, storage unit and a co-working office space all compiled together,” Mr Ledlin said.
“They are strata titled, so you own the unit and the land underneath it, and also a proportion of all the common areas and bathrooms and the like.
“That product is targeted at trade users that are in and out during the day and it will be largely driven by e-commerce as well.”
And when it comes to Mr Ledlin’s own house, he said he doesn’t plan on doing anything but renting for the foreseeable future.
“I rent my house, I don’t own my house and a lot of people just can’t understand why I run a successful business like I do and have a commercial property portfolio like I do and pay someone rent to live in a house that I call my home,” he said.
“There’s a real stigma in Australia towards renting your home and there’s an esteem held in owning your own home, and I think it’s largely unfounded and based on non-evidential support and quite frankly doesn’t make sense.”
Mr Ledlin said many Australians are coaxed into property ownership ambitions from a young age, hearing phrases like ‘rent money is dead money’, ‘you’re paying someone else’s mortgage’, and ‘you need to get into the property market’.
At the same time, Mr Ledlin said an important part of Australian culture is that you take advantage of your youth and travel or explore different career paths - ambitions that he believes are counterintuitive to home ownership.
“For me when deciding to continue renting, flexibility is the biggest consideration,” he said.
“I’ve lived in four homes in five years as my personal circumstances have elevated. I’ve been very fortunate to have had a very successful five years, I’ve been free to move from one property to the next as I’ve entered a relationship, I’ve been able to move from a small home to a bigger home, then we got a puppy so we moved once again.
“For young Australians, we finish school and it’s almost a race to see who can be the first one from our graduating year to commit to a 30-year mortgage, and I just think that’s wild.
“Opportunity cost is another big consideration. What would we be doing with our financial lives if we weren’t committed to such a large commitment in a mortgage, the deposit and the ongoing costs?
“There are a lot of young Australians who have entrepreneurial goals and endeavours that are strong-armed by a prior commitment to a mortgage.
“Establishing a business is easier than ever with the internet but it still requires funds and we are adverse to risk when we have large financial commitments.”
Aside from being able to pursue entrepreneurial endeavours, Mr Ledlin said investing in commercial property rather than residential had significant financial benefits also.
“We have record low interest rates in Australia right now which is fantastic for borrowing money, but we also have record low rental yields,” he said.
“So when we are looking at the average home loan interest rate, as of the end of January I think it was 3.49 per cent.
“For the particular market that I’m looking to rent, townhouses and those types of properties, yields are around 2.5 per cent.
“It’s cheaper for me to rent a property than it is to take out a mortgage and pay the interest-only component of that mortgage.
“And as a homeowner, you are responsible for any maintenance, when the aircon leaks or the hot water system breaks, you are responsible.
“There are rates, body corporate fees, land taxes - these are all the responsibility for you as the homeowner.
“As a tenant all I do is pay my rent and I’m on my way, so it is drastically cheaper to rent a property than it is to own a home at the moment.”