Small Talk Big Ideas - Steve McKnight - PropertyInvesting.com

Thanks for joining us for the Small Talk Big Ideas podcast, a podcast to enrich your soul, where we have conversations with inspiring people about all things property, business and life. And now, the host of Small Talk Big Ideas, Ian Ugarte.

Hey, everyone. Welcome to the first podcast of the series of Small Talk Big Ideas. And I've brought an absolute awesome guest along as my first, first guest for the podcast. And we'll talk about everything, I suppose. This man, Steve McKnight, has been in the industry for a long period of time and has bought and sold thousands of properties, including creating one of the best funds that's been around for the last six, seven, eight years, returning ridiculous funds through dividends and equity growth. So please welcome to Small Talk Big Ideas first podcast, Steve McKnight. Hi, Steve. How you going?

Hi, Ian. And hello, listeners and viewers.

Look at you. You're sitting in a little old homestead in the Gippsland Valley. Is that right?

Yeah. I'll send you some pictures to do as overlay so people can see where I am. Beautiful country decimated by white settlers who chop down the trees and let their cattle compact the earth. And. And we're doing a little project out here to plant. Probably end up being about 300,000 trees by the time we're done to turn it back into what it should have been. And that is a native forest.

So you are just tidying up, putting new bathroom in there just so it's, you know, a bit more comfortable for the family because you obviously live in Melbourne Central and you want people to be comfortable when they go out there.

Well, when you say me, I am the apprentice, and that's being generous. I'm not the foreman because I don't know what I'm doing. I'm not really the apprentice because I don't know what tool to handle. I'm more like the tea boy who makes people cups of tea and tells the latest joke.

We call that a gopher in the building industry. We talk it the gopher. So go for the hammer, go for the tea, go for the coffee. There's an old story about that guy that turned up to a job site for a laboring job, and the foreman said to him, can you make cup of tea? And he goes, yeah, I can make cups of teas. And he says, can you work a wheelbarrow? And he goes, wow, geez, must be a big teapot. So that's a shocking joke. Steve, you. This is like we're almost starting backwards here because this is really your purpose project, and it's taken the while to get here. I mean, you've got an environmental sense to you, You've obviously got a property background, which we'll talk about further. But I think here, starting with this project is probably a really good place to start, talk about and what you're wanting and have already started to achieve.

Yeah. To understand this project, you have to look at the two phases of probably three phases of Steve McKnight's career. The first phase was when I was doing what perhaps a lot of people are doing, which was stuck in a job that I didn't find particularly rewarding. And then the second phase was transitioning out of that and finding a way of being able to replace the income from my career, which is when I got into real estate investing back in 1999. And then I call that survival. Phases one and two. And then once you've been successful, once you've made a fortune, you can then start thinking about legacy and significance and how you can use the money that you've made to create areas of significance for yourself and others. And one is sort of selfish and one is sacrificial. And what adds meaning to life, I've found, is the sacrificial part of it. But it's hard to be sacrificial, particularly in our culture. And if you're not first selfish, you have to be a special sort of person to be able to do that. So, in short, I made a fortune in real estate. Happy to talk about that. And I'm now spending my fortune to some degree in planting trees and watching them die and learning and planting more trees and hopefully watching them grow.

Because ultimately this project's a profit for purpose project. I mean, it's a social enterprise is what you hope to achieve out of this.

It's a little more than that. The idea is it's not a zero income project. The idea here is to return a profit from this site and that will give us money to reinvest back in the site and perhaps even got to be careful what I say because my manager's at the back there and I don't want to scare him. But if we're able to get this site to the point of being workable and profitable, then there's no reason why we couldn't look at doing another site somewhere else some years henceforth. And I think I just heard Kim say quit. So that's a problem.

The idea here is we plant the trees. And this is a large site, it's 1500 hectares. That will allow us to subdivide it into 40 hectare or they'll be bigger, but 40 hectare bush blocks with protection for the trees that they can't be chopped down. As the trees grow, they suck up carbon dioxide, they spit out the oxygen, they keep the carbon. So trees are really carbon batteries if you like, carbon storage device. And then the Australian government will give me something called an ACCU Australian Carbon Credit Unit for the amount of carbon that's sucked up by these trees. I can then sell those accusations to emitters who want to offset their emissions and make some money by doing that. And although the project has some extra costs, the value of an accusation has also gone up. And at this point in time it still looks to be a profitable project. It's not the sort of project you'd want to do as an investment to try and make a lot of money, but it's a project you can do if you've made a lot of money and you're trying to what I call find a way or make a way to rehab unviable farming land into something that is what I call greener and cleaner.

And as per usual, you've gone into it with what I would have thought reasonable low risk. Because I've always found you super, super low risk. And it, you went in with it probably without the risk factor into it because you're in a position to be able to do it. It's actually ended up a huge learning curve. Firstly, let's start with how many trees were planted.

Yeah, I think more or less in the first planting which was 20, 19 over three trenches, we planted rounded 200,000 trees.

200,000 trees. You also had to put a fence up all the way around the property? Well, not all the way around the property, but the majority of the property?

Pretty much, yeah, no, no, pretty much just a small fence, six foot high, electrified deer proof fence. And some of the terrain around here is a little tricky. The people that put the fence in, they, they were going along well and then, then they encountered a cliff and they said how do we put the fence down the cliff? We said that's why we, we're paying you. And so they, it's, it's almost a vertical drop. And so there was some up and down terrain they had to do it with. And the deer proof fence was about a hundred thousand dollar investment. And it's proving not to be quite deer proof, more deer prevention. But it looks like it's a little better now than it was a couple of months ago. As the deer are learning they're going to cop a Belt if they get too close to it.

Right. And so deer proof fence doesn't necessarily mean that they can't run through it. They can literally run through it like it and it would need repairing as well. Yeah, yeah, yep.

That happens if there's a fire coming and the only way for the deer to survive is a choice of being cooked by the fire or copping a belt from the fence. They'll take the belt from the fence every time.

And that that whole area was devastated with fire in the early 2020 fires.

Yeah, yeah. East Gippsland copped it hard. And we're in East Gippsland. We're lucky in the sense that the fire was on the property but on the other side of the fence. The fence isn't quite on the boundary line. But I jumped in the ATV a couple of months back and went up to where the fire started up on the hills behind the property. And again I can get send you some photos to put as overlay. But there was total devastation. The kind of complete wipeout that you see in the end of days times. Like an apocalypse, you know, whatever. Whatever that word is.

Apocalypse.

Try saying that with a mouthful of marbles.

It was pretty bad. We're lucky we didn't get burned out. But for a wind change it would have come right through here and wiped us out.

I think one of the things with this project too is that I've been watching all the learnings as it's been going along as well. And it's easy for me to sit back and you know, say, oh, you could have done that better and could have done that better. But things are things and you know, you are pioneering here and there's a few points in your life where you remember situations and moments as a perfect moment. When we were. Well, you know, I'd gone up there to stay with you and Katie was there with us and we'd. We went up into the top corner and we went just over your boundary and we sat in that little gully under the trees and we just spoke about stuff. And you know, I can probably clearly remember three or four moments in my life where it sort of just felt like the perfect moment. And this is not really a question, it's just a comment to say that you were one of my perfect moments. Just sitting there under the trees, in the bush there. It's such a beautiful place.

It is. This is truly amazing country. I mean, I woke up this morning to minus 1 and frost on the ground and a couple hours later there's nothing but Bright sunshine and it's green at the moment because there's been a little bit of rain. And I was only sitting out last night watching the sunset, giving thanks to God that I could experience that moment. And I'm here sort of by myself. I know Kim's the farm manager who doesn't live on site though, and I really love it up here. I, I feel, I guess, a small sense of what Aboriginals must feel about a connection to the land in, in that, you know, I'm a first generation, I've only owned the property for a couple of years and I already really feel like the land is speaking to me. And I'm. I've got a job of not mastering it, but nurturing it. And it's not a small project. It's $2 million and counting of money that's been invested in it. But I really feel good about it. I feel good about being involved in it and I feel good about coming out here and enjoying it. It's a long way away. It's a six hour drive from home, so it's not somewhere you can just go because you wake up and want to go. You kind of got to be here for a few days to make it worth your while.

Yeah, I couldn't do it. I so dislike driving. Six hours just does my head in. But you obviously mind it. So let's go back to the beginning then. You've already mentioned you started as accountant. You decided one day that, you know, you never thought the negative gearing was a good way to go and you did want to go into property and you wanted to make sure your wife, your wife had a request. I think she didn't want to need to work. Was that was what had happened there. And you decided to get her out of paid employment.

All right, some background and I'll try and tell this story a way that even if people have heard about Steve McKnight before, they may not necessarily have heard it this way. Because I'm not a performing bear and I don't just have a few sayings that I trot out over and over and over again. I reckon to understand what I've done and why I've done it, you have to get to the point in life where you just cannot do what you're doing anymore. And it's, it's what I call transitioning from being uncomfortably comfortable. So someone who's comfortable but doesn't feel quite right to being uncomfortably uncomfortable, which is really out of your comfort zone and being stretched and challenged. So I had Gone to school, not done particularly well, not a failure but just sort of as Bob Allen once said in the bottom third that made the top 2/3 possible. I went to an all boys school I wasn't academic, I wasn't sporty, I was quite overweight and so I was there to really just make up the numbers to be honest and I did manage to get a score that in year 12 that allowed me to go to university and study accounting I wasn't great at maths but the logic of accounting suited me and I did accounting and third year in my accounting degree Ian was what was called a co op year and I had to go and work in accounting in practice or in industry for a year and then go back and finish off school in fourth year well we're talking about 92 I think it was and that was in the midst of the recession it was hard to get a job but luckily I jagged a job in a small accounting firm and I didn't like it much at all in fact I remember crying on Sunday nights at the thought of having to go to work for the next week and ironing five business shirts, one of which was pink, I'll have you know, with a pink matching tie to go with it. Special people may not know but one of the most exciting thing accountants get to do is wear a blue shirt on Friday. Blue shirt Friday.

What's the reason?

A window into the.

Is there a reason behind that?

That's because you can. Because you want to add some variety into your life so you wear a. Wear a blue shirt on Friday.

I've always wondered why barristers and lawyers tie their bundles in pink ribbon. No one's ever been able to tell.

Me why I don't know the answer to that one but if you see an accountant wearing a shirt on a blue shirt on Friday you say hey, blue shirt Friday. And you'll be an industry insider. But I, I figured I wasn't even going to go back and complete fourth year accounting I just didn't like it that much I but I in I thought Jesus, you're three years in, finish it off. So I got going back to fourth year and something clicked, I don't know what it was it was whereas before I struggled, now I was getting top marks and I was enjoying it and I maybe it was a maturity, I don't know and that's why for people that have children who are struggling at school I say don't give up on them because I was a late starter and a late bloomer and I Did well in final year and I thought, well, maybe it was where I worked that I didn't enjoy. So I, I got a job with one of the large accounting firms, Deloitte, working in audit and started an accounting career and went on and became a chartered accountant which is as high as you can go in that branch of accounting. And then had a total career meltdown and wanted to get into physiotherapy, into physio really. Yeah, because I very, very hands on, liked massage, was good at it, had a, a sense of natural healing. And I, because I didn't do the Subjects in year 12, the only uni that would take me was Sydney Uni and they had a sort of mature age already done degree program but they only had a handful of spots and they always had a lot more application than they had spots. So it turned out that I didn't get in. I was just, I just missed out. I was second or third on the second round offers and later on I found out, would you believe it, someone came to one of the training events that I was running at the time and said, oh Steve, I actually assessed those applications. And I probably would have assessed your application that year. I don't remember it, but I probably would have assessed it. And I can say to you that we never let anyone in the first year they applied and it was just our policy that because we got so many applicants, one of the ways we determined whether someone really wanted to do it was whether they applied again the following year. So if you got to second or third on the second round offers, you would have for sure got in if you had have put in an application the following year. So that's an interesting sliding doors moment.

Aren't you glad that you didn't, that that's actually happened to me? Well, I mean, I can tell you, I can tell you a couple of things from what you've just said on my view of the world. Firstly, the reason that you came back and did so well is because I've watched you. You're an experiential learner. You are you. There's five types of learning styles. Here's my degree in adult education coming out rote reception, which is what most schools do. It's the cheapest form of learning. I'm going to stand out the front and I'm going to make sure that you hear what I say and then I'm going to make you repeat it and then that's how you're going to learn. Then you've got problem solving, discovery Learning and experiential learning. And they're the three forms that schools like Montessori's and Steiners use because it gives the chosen person the ability to be able to force their learning upon themselves when they're ready and when they chose. And so you look at this project that you're sitting in right now, experiential Learning, you look at what you've done through your career, Experiential learning. And I had one of those moments too where someone in one of my crowds came out and said, oh, Ian, I just want you to know I assessed your job application for Assistant Director of Business back in the day at tafe. And yeah, look at you now. So, all right, so you get to that point where you didn't get accepted to physio. What's the next step after that?

Well, I'd been transparent with Deloitte about wanting to do physio and that ended my career there because you either climb the ladder or you get pushed off the ladder. There's always another batch of grads underneath you. So I also had a sort of bad Christmas review where I turned up and the partner, who was my partner so called in charge of me, was drunk and been at a boozy Christmas lunch and I thought, geez, I'm working really hard, 12, 14 hour days for you guys. You don't even really know who I am. So I made a big career mistake and took a head office job doing pointy end accounting. But between Deloitte and taking that job, I went on a holiday and that's when I met Julie and my wife and Jules lived in Mackay and I lived in Melbourne and we met at Ayers Rock and we were just different, different tour parties of the same tour company that met up at Ayers Rock. And then that started a. A bit of a long distance friendship that turned into a relationship. And this job that I took when I came back from the holiday I really didn't like and I used the COVID of moving to Mackay to woo Julie as convenient excuse to quit that job after a few months. And then I moved up to Mackay and I wooed Julie. And then I got sacked from my job in Mackay in accounting as an accounting manager, moved back to Melbourne and then got another job in accounting. And that's when I met my business partner, Dave Bradley. And then it was in 1998 that Jules and I got married in 1999, the start of 99, that Dave and I set up our own accounting practice. And then finally, maybe a slow learner in May 1999, or maybe a bit earlier, I came to Dave and I said, dave, I really cannot do accounting anymore. I'd actually ended up with stress related ulcers on man parts of my body. And I went to the doctor and the doctor took a look and said, you never want to hear your doctor say this. I've never seen that before. And that.

I want this podcast. We talk about small talk, big ideas, just like we're going there straight up.

And he only lived next door to the doctor. And he said, look, let me do some research and I'll come back to you. Anyway, he went to his medical journals back in the day, took a photocopy of a page, which I still have, and on that page he said, yeah, stress related ulcers. And I think it's take a holiday exclamation mark. And that was my, what Brendan Nichols, a mentor of mine, says was my snap point point when I said, I just cannot do this anymore. I'm getting sick doing this. It's the physical manifestation of emotional unhappiness. And I had to change. And around that time I'd read Kiyosaki's book Rich Dad, Poor Dad. I'd attended a preview night and then Dave and I ended up going to his two day seminar. And at that seminar there was a real estate agent who mentioned positive cash flow. Now, I knew all about negative gearing because if you go to an accountant and you ask your accountant what's a way of saving tax, they'll probably say, well, have you considered investing in a piece of real estate that's negatively geared because that will create a loss that you can use to offset against your salary income to bring your tax lower. And why isn't that a good idea? Well, it is a good idea if the value of your property goes up more than the loss you make because your expenses are higher than your income. But in times when real estate isn't going up, or in times when real estate is going down, negative gearing is a really bad idea. So negative gearing can't really be used to replace income from a reliability point of view. So in the absence of being able to use negative gearing, we have to find a different way. And positive gearing, which is where you have a property where the income is higher than the expenses, or more accurately, the cash flow in is higher than the cash flow out, leaves you with a cash flow surplus. That cash flow surplus, if you could add enough scale, allow me to replace the income that I would otherwise earning in the accounting practice and yes, I did a deal with my wife Julie. I said, Jules, if we live off your income for a couple of years and this investing takes off, then the income that we earn from investing will mean that you and I eventually will never have to work again. And so we went on a journey. And the first book I wrote charts how Dave and I, together with our wives, went and bought 130 properties. Actually a few more in three and a half years. And that 130 properties was enough cash flow from them to become financially free. So I'm 48 at the moment and for the last 16 years I've been financially free. I hit the jackpot at 32.

And so you've chosen to do what you want to do when you want to do since that point in time. Really?

Yeah. And golf's not my thing. So the idea of becoming financially free to sort of hit a golf course is not. I still am very active, I still invest, obviously. I presently have only two investment properties for income and a dirty great big investment in my fund that you mentioned before. And that brings in more income per annum than I can spend. And so I, I'm just in a nice spot where I'm financially free doing what I want to do, when I want to do, how I want to do, with whom I want to do, for as long as I want to do it. And I can. You'll be pleased to hear this. I can faithfully say the ulcers have long gone and have not come back.

Why would I be pleased to hear that? Like, it's just, it's as if I'm.

You're a caring chick, caring, sharing kind of guy. How are your ulcers?

I note that you've told me a story and you can mention him or not if you want to, but you obviously did a lot of seminars under. Well, not a lot of you did some seminars, Understanding Positive Cash Flow. More and more and more you went to the back of the room to ask one of these mentors a question.

Yeah, I'm happy to tell this story because I think it's an important lesson for everyone and it was a very important lesson for me. So at that two day Kiyosaki seminar during the first break, as I recall, I went up to Robert, who was standing at the back of the room and I went to actually ask him, I believe his so called rich dad, son Mike. There was a story about Mike in the book and I just wanted to ask how Mike was. Is Mike okay? It was not from a gossip point. Of view. I genuinely wanted to know how it ended up because I hoped he was okay. So I went up to Robert at the back of the room and I said, hello, Mr. Kiyosaki. My name. And then he went hand in the face. I was a bit shocked. And so I stopped and he said, where am I standing? You know, it was pretty intimidating. I said, oh, you're at the back of the room. And he said, that's right. If I wanted to speak to you, I'd be at the front of the room and just awkward silence, kind of. And I, you know, felt this big. Speaking of small is the new big. And I. I kind of sort of just didn't know what to do other than turn around and walk out to the morning tea break. But the lesson that I learned that day was that because I thought if I could only be Robert Kiyosaki, my life would be sorted. Yeah, you know, a bit of a hero complex. And I learned that day that you don't want to be the guru. You may want to know what the guru knows, and you may want to do what the guru has done, but don't make the mistake of wanting to be someone else. Understand that you are unique and you're special and you're you. So don't think that if you were someone else, things would be better. Just understand that if you were someone else, things would be different. So what did I learn that day? I learned that I said if I was ever lucky enough to have people who want to learn from me, I would never, ever, ever do that to anyone else. And by the grace of God, I have trained millions of people around the world through books and websites and trainings. And there are moments when you get very frustrated because you're tired, emotionally, physically exhausted. And I don't believe there's a single time I've ever done something like that. So I've tried to stay faithful to it. Just be humble, be grateful that people want to learn from you.

And I have to say that that lesson, there was an impact that you had on me from the very first time that I had seen you interact with the people around you in your community. And I came from a background of being taught that exactly like that. That, you know, be at the back of the room, don't want to. Don't want to talk to people. And I watched you at the free event that. Sorry, the first event that I went to with you and was presenting on your stage, and I watched you walk around and it didn't matter where, how, what Time it was when it was doing, you stopped, you talked to people and you gave them your full interest and it was something that actually blew me away. Since then, obviously, you and I have been working towards about, you know, who. How does Ian want to be remembered? And your impact on me has been massive. And to the tribe that have followed me, they've noted a significant change in how I relate to them because ultimately I want to be remembered, you know, similar to how you already are remembered and known as that person that has the time. For someone that hasn't got this, you know, set on, on a platforms type scenario, I certainly don't ever want to be put on a pedestal because those people knock or fall off pedestals all the time and I never treat anyone on a pedestal anyway. So thankfully, that's the point. So from me to you, thank you for that one simple lesson that you've.

Helped with me now at guru. Hang on, Ian. At guru school, they teach you that you want people to look up to you and that'll help you conversion on sales, because people aspire to be you so they'll buy what you're selling. Always taken a different view. And I've taken the view that every one of us has a problem that we know how to solve and that's how we get paid money, because we solve problems. And it's just that the problem that I know how to solve, which is make money consistently from real estate.

Is that solution is something that people want. But I mean, take a plumber, if your toilet's backed up, it doesn't matter how many positive cash flow properties you own, you want a solution to that problem pretty quick. So I don't believe that my knowledge, to my problem is superior to anyone else's. I just think it's different. And when you're a teacher, if you disconnect the person from the problem, I think you might as well be a robot. Because at the end of the day, behind every real estate problem, there's actually a person problem. There's someone who's battling a difficulty, maybe that they've got a relationship issue or a health issue or they're desperate to get out of a job or there's some motivating factor, they want to get better, they just don't know how and when you can really, instead of, hey, Steve, can you tell me an area in New South Wales that would be a great place to invest, for instance? Well, okay, I can give you a fish, but let me teach you how to fish. What is it that you're trying to do from your investing? Well, I'm trying to earn cash flow. Well, are you better off going a different pathway to get growth, to multiply your capital first? Residential is typically a better market for capital growth and then swap over into say a commercial property for income later on. So it's a two step dance move rather than just a one step get out of your problem. So when you understand the person and what they're trying to achieve, the right property, the right area, the right strategy all emerges. Whereas people seem fixated with what's the right thing to do and there isn't sadly the right thing to do. For some people negative gearing might be an appropriate strategy. For me it wasn't. But for other people it might be. For some people it'll be. And I'm a big fan of yours, Ian. For some people the best thing they can do is to sign up to your program and learn how with low money down they can start getting into some positive cash flow transactions to get in the game. So there's, there's different and there's no right way. There are just different ways. But there are ways where you can do what I say, make the most money in the quickest time for the least risk and lowest aggravation. And there are monies where there are ways where you can make the most money in the least time for the most aggravation and lowest risk. There are all sorts of different combinations and permutations to that formula. And our job, and this is the art of investing, is not to just do anything, but to do something. And that something is to understand the risk to the return relationship. You can only do that if you have skill and, or experience. And that is investing. To me that's something that you can only learn so much at a seminar. And then coming back to your point earlier, experiential learning is, is ultimately how you learn to ride the bike, right?

Yeah, yeah, absolutely. I mean as, as a TAFE teacher teaching plumbers, you know, I was working against myself in my own mind because here I was saying to myself, you know what, out of all the stuff that I know in plumbing, only 5% of it was actually at the TAFE course, was actually during my 3, 4 and ends up being six years of learning from TAFE. So here I am teaching kids 5% of what they're going to end up knowing. And so how can I have a better, you know, influe on them from that perspective? Now you've gone off, you've done the 130 properties, you end up in a position where Dave and yourself decide that Dave takes the properties you took. PropertyInvesting.com, which is arguably one of the largest property investment communities in the country. And there it is up on screen right now. And you've done an awesome little thing on my behalf was that COVID 19 commercial property calculator, which when it came down to supporting residents and tenants and landlords, they chose that landlords in commercial property weren't going to be the best outcomes. Do you want to say something about that? And our amazing government that didn't really support commercial property.

Well, I guess you can rely on politicians to do things that further their own political interest. And when it came to COVID 19, they were facing a difficult decision about who, who are they going to support and who are they going to not support. And this is a decision that's, it's changing and still going on today at all different levels, from people in welfare to, to commercial property and even residential property. So we were faced with a situation where the government made thought bubble policy and without legislation to back it up. And they basically said, if you're a landlord, you can go and talk to your bank, but your bank doesn't have to have to actually do anything. They should, but they don't have to. So we're not going to legislate and force banks to help you, but we're going to legislate and force you to help your tenant. And not every tenant, but most tenants are shrewd and they saw this as a way of why pay rent if I don't have to? And that then created a sort of wedge situation where most people have debt on their properties and they have to find cash flow to pay that debt. Principal and interest, probably, but they weren't getting income and they've also got council rates and etc, etc to pay. So the reason why landlords got squeezed is because the government wanted to support the banks in the banking sector and the government wanted to support the tenants because there are more tenants than there are landlords. So in terms of political, political pushback, the weak point was landlords. So they got thrown to the wall and we haven't really seen that play out yet because in the background, tenants, residential and commercial, are just mounting up all this debt of rent that they owe landlords. The next question will be, come September, when landlords say, all right, the party's over, you now need to cough up some cash. And you have a whole lot of people say, well, I got no money. And then.

The question is, what happens then?

Yeah, we spent all our jobkeeper arrangements on stuff that we didn't need, which is, you know, not great. Now you know how they've handled it, how the market's been doing. You and I both have a different perspective of what is and going to happen. We've got a $1 little bet on the line. I don't know when, when does the dollar. When do we actually get to that point?

Well, let's, let's take speculation off the table. There's only three things that can happen. One thing is that nothing will happen, and the other scenario is something really bad will happen and then there's a scenario where something in the middle will happen. And as investors, what we really need is not to pick which of those three strategies will win or three scenarios will win, but why don't we have strategies for each of them? So I believe the best case scenario that we can hope for is the in Ugate value V shaped recovery, where it might actually be even more than a V, it might be a tick because the amount of stimulus that could fuel the market could lead to people overspending money if the government continues to throw more and more money. I mean, you and I haven't talked about this, Ian, but something extraordinary has happened in the United States where the government has come out and said, well, we're going to start buying debt of private companies to support them. So we're going to transfer the risk from companies over to taxpayers to, you know, the whole too big to fail kind of scenario. Whereas what, you know, eventually it's like a sinkhole. At what point is the government not able to stop the sinkhole anymore from getting bigger and bigger? And, and that's the worst case scenario. And that's something that I'm frankly worried about. And the worst case scenario is, is where we enter into some sort of realistic depression that lasts for some time. And we haven't seen that in living memory. So while we should, while we can hope for the best, we should also plan for the worst and have strategies for both ends of the spectrum. And then the truth is something probably in the middle will happen. And because we're prepared for the best and the worst, we're also prepared for the middle.

50 cents each way then on our $1 bet.

You're a betting man. It's always odds for you.

I'm trying to win a dollar back from you. I've never won one from you. So.

I've always said you're an odd man, Ian, that disproves it. You're always after the odds.

Let's talk about the fund. Because you had invested in the US previously, you knew the US market reasonably well and you also have lived over in the US for a year as a sabbatical to do a few things and look at what was possible. How did the idea, well firstly, how did you start investing in the US and how did the idea of the Australian fund investing in US commercial property come about?

Oh wow. I'd always been interested in a strategy in the United States which is called tax lien investing. What happens with tax lien investing is you don't buy the property. You buy effectively the council rates that property owners haven't paid and the property owners have to pay you an interest rate up to 18% on the council rates that you pay on their behalf. And if they don't pay you back, you can foreclose on the property and in a best case scenario maybe even get it for no more money down and the mortgage gets wiped out. And I was like, wow, that sounds like a good way to make money. And the books that I had read written by people like Kiyosaki, Bob Allen and others, Ron Legrand, John Burley, had all mentioned tax lien investing, which doesn't exist in Australia by the way. So I had been interested in that concept. And then in the 2009 conference that I was running in those days, three day mega conference, I had a speaker pull out and someone got in touch with me and said, oh, there's a guy I know from the United States who's over, who talks about tax lien investing. Would you like him to come and speak at the, at the Millionaire Mega conference? And I was like, oh, can you vouch for this person? Are they legit? I don't know them. I'm reluctant to put anyone on my stage I don't know and haven't met, but it's like, yep, this is guys the real deal. Okay, so we. His name was Dan Eckleman and Dan Eckleman was the best platform seller I've ever seen in my life. He was phenomenal and amazing. Check after check after check, straight to your mailbox. 18% return, government guaranteed, can't lose. Check after check after check. And then anyway, suffice to say that a number of people bought on to be trained on how to invest in tax liens. And I was a little bit worried that the database was perhaps being potentially manipulated. So I wanted to go and do the training as well. And then I did the training in Melbourne, and then went over to the United States because I didn't want to invest in anything that wasn't legit. And so I wanted to go and see for myself. So in 2009, went over to the US and started looking at properties to buy tax liens. And as I was over there, I saw duplexes, three bedroom, one bathroom, front and back, for sale in certain areas, Florida, where I was for $20,000. And the returns on them were 30% gross, 20% net. And I thought, why am I investing in tax liens and buying the unpaid property taxes when I could? Actually, I'd be better off buying the properties. So I bought. I haven't done the maths, but it's probably about 150 doors, because sometimes they were duplexes. So that's two doors, 150 or so doors in 2009, 2010, 2011 in total. And then I saw the market coming back and I thought, right, what's the next thing to move? And I thought, well, commercial property is probably the next thing to move. And people had always been asking me, steve, can we give you our money to invest? And I always said no. And the Aussie dollar was high and I'd already seen the US market coming back. So I went to my database@propertyinvesting.com and said, look, you've always been asking for it. I'll put together a fund. I only do it if we do it properly. So I put together what's called a registered managed investment scheme. No difference between me and something that, like an AMP or a bankers trust or whoever might do. It's all regulated the same way. And we raised enough money to go and buy. And I ended up with a fund that at its peak had about $170 million of assets. And that fund is now sort of coming to the end of its life. Earlier on this morning, I was doing property deals from Bindai in the United States. And we're selling some properties to. To pay down or return some capital to investors because I see it as a way of de. Risking the investment if the worst case scenario happens. At the moment, there's an appetite in the US still for buying real estate. We don't have to sell everything, but we can sell some of the properties and return, as I mentioned, some of the capital to investors as a way of taking some risk off the table, which is what we're doing.

So let's talk about some simple numbers. If I was to have put $100,000 in when you first opened up the fund, what would that $100,000 look like yearly? And today, what's it worth?

Yeah, I don't have the exact numbers in front of me and I need to put some disclaimers here. Past performance is not an indicator of future performance. And this is in no way an earnings estimate. You can't invest in the fund at the moment anyway because it's, it's not open, but in round terms and it's bouncing around a bit because the Aussie dollar is pretty volatile against the US dollar. But you, when I last checked, you would have done about 17% per annum net of fees. So.

It'S been going for what, eight years now? Seven. Eight. We'll say seven years. So seven tens are 70 and seven sevens are 49. So you would have got about 120% return on your money. So if you put in 100, you'd have another. You'd now be worth, say 220 grand, give or take.

Right. And so that 220 in total return, in total return, so that, you know. So if you were to sell everything.

On the distribution and capital growth.

Yeah, that's pretty, pretty awesome. That would have to be one of the better performing funds if the best.

Yeah, it's done very well and it hasn't been a hard investment for people because, you know, my team and I are the ones in America and Australia who are doing everything. All people are doing is frankly investing and watching what happens. And that's the best way to invest, isn't it? When you don't have to worry about making all the hard decisions and you get paid a return. It's fantastic when it happens because it's.

One of those things. I always say that, you know, there's a difference between positive cash flow, passive income, because there's nothing passive about property. You have to be working a job and effectively, that's what you have done. You've created a passive income for people.

Yeah, it's not passive for me, though, and it's not passive for my team. It's passive passive for the investors. The idea of being paid something to do nothing is a very attractive proposition. But typically if you do nothing, you earn nothing. That's the law. Sowing and reaping is, as we all know and have heard before, someone has to do the work. And in real estate, what I've found is that money follows management. So if you have poor management, either over the investment itself or over the investing strategy, then you're leaking money. And one of the biggest mistakes that I see people make is they rush out, buy a $500,000 property and feel good about, oh, now I'm a property investor. No, you're a property buyer. And then what they do is they take their asset that they've spent hundreds of thousands of dollars buying and put it in the hands of the property manager who charges the lowest possible management fee they can find. And to me, that's the equivalent of buying a Ferrari and taking it down to Joe's Grease Shop and getting it serviced there. It doesn't make any sense at all. If you're going to make the, the decision to take the risk and buy an investment property, then, geez, learn how to manage it. Learn how to manage the investment and learn how to manage your team. You don't have to do the management of the rental property collection, but geez, you need to know how to run a team or otherwise you'll leak money. That's the consequence of being lazy is that you leak money.

Yeah. So you know, and again, what you've done for a number of people over a number of years, like that fund, just to start with you, you could see it like when, when Australian dollar's running at $6, $10, at some point in time, you know, you're well above parity. And the Australian dollar is always, you know, relatively lower than the American. That in itself was a masterclass of investing. And you've always been able to show people the low risk way. And I love the way that you break down people's ideas and thoughts when it comes to property and ask them the basic questions so they have some realization. And that's all well and good, but let's talk about some really important things, like have you got a goal of representing Australia in the Masters playing ping pong?

No, I play for fun, not for edge. I always like table tennis. And I woke up one day and not long ago and I said, look, I'd really like to get a bit better. We've got a table tennis table in the office and this was an interesting way or window into the way Steve McKnight thinks. So I said, well, I want to get better. What can I do? And your brain always goes to how can I get the best result for the lowest money down? So I eat. My dad was known as Graham McTight and I am my father's son. So this goes against what I said just a couple of minutes ago. So you know, do you watch a YouTube clip? Do you, do you get a book? And I went, hey, I've made all this money in real estate, why don't I go and find the best coach I can find and have one on one lessons? And so that's what I did. I went and found a guy who used to represent Australia in the Olympics at table tennis and he lives a half hour drive from my place in Melbourne and his name's Mark. And I said, Mark, how much would it cost me to have a one hour lesson with you once a week to work on my table tennis game? And he said I think it's 70 bucks. I said done. So I get a guy who has represented Australia in the Olympics to give me one on one coaching for $70 a week, which I think is extraordinary bargain. And I'm not. Then he said after a couple lessons, Steve, if you really want to get better, you should really start playing in a tournament. And I said, I don't know that I want to. And he said, well, do you want to get better or do you not want to get better? And I said okay. So he said I run a competition on a Monday night and there's different levels and we'll start you off at the bottom level and I think it's F grade and it goes all the way up to A grade, I think I'm in F grade. And he said.

You'Ll probably be a bit too good for F grade but we'll start you there and watch what happens. So here am I, a grown man who's bought hundreds of properties, bought and sold thousands of properties or over a thousand properties, and I turn up to Monday night competition playing 13 year old boys and girls in F grade. So nervous that I'm sweating profusely.

Did they wipe you off the table?

Well, your nerves get the better of you and, and of course for a 13 year old kid playing an adult, if they beat you it's high fives and smiles. But if a 48 year old adult loses to a 13 year old kid, it's nothing but shame and humiliation. So it's, it's all a bit one way traffic. And do I really feel good about myself beating a 13 year old kid?

It's a lose lose situation, isn't it?

That's right, you can't win. So I actually spoke to Mark about that. I said, Mark, look, I feel I just don't have the killer instinct in me to beat a 13 year old kid. There are also some adults playing so I'm happy to have a crack with the adults. And he said, oh Steve, you're thinking about this all wrong. If they lose five minutes later they've forgotten about it. They don't go home and think about how worthless they are in life or anything else like that. You, you're actually doing them a favor by beating them and showing them how to get better than you are, worrying about preserving their self esteem. So anyway.

I was playing a 10 year old kid, so even worse, right? A week after I had this chat with Mark and I had another snap point Ian. And I haven't told anyone this story because I'm not sure if I should be embarrassed by it or not. But given that it's only you and me talking now.

What happened was this little 10 year old kid, what he would do is instead of passing the ball back to me, he, he would, he would just hit it and if it went flying over my shoulder or my head or between my legs or whatever, he didn't care. So anyway, he lost, he lost a point and he, instead of just passing the ball back to me, he hit the ball back to me and he skewed it and it went miles away. And I looked at him and I said, I'm not getting that. You hit it over there, you go and get it. And he looked at me, what? And I said, well, you can pass me the ball back respectfully like I give to you, or you can be lazy and hit it anywhere. And I've done it a couple times, I'm not going to get it. If you want to keep playing, go and get it. And he was up and we only played to 11, it's called rapid fire. And I think he was up 8 to 3 or something like that. And then he kind of looked at me and his mum was over there watching as well and he looked at his mum and he looked at me and he looked at his mum and his mum shrugged and so he went and got the ball and gave it to me and I said thank you. Now that shows respect. And I then beat him 11 to 8. Something snapped and I went that competitive edge. I'm not losing, I'm not losing to a smart ass 10 year old who can't show respect.

So when, when the game was over, I said to him and sincerely I said, look, it showed a lot of character to go and do what you did and pick the ball up and I, I really appreciate it and well played because you're a good player and you're much better than I was at the same age and keep going. So it wasn't about putting someone down and feeling good about myself, it was just about standing up for myself and just Talking to the other person about the level of respect that I felt that I was owed. And then when that level of respect was being shown, acknowledging it and beating it, that's important. Beating it.

Can I ask any question? Can I ask any question?

Yeah, as long as I can give any answer.

It could be personal. If you're okay with talking about it.

Yeah, go ask. I'm pretty transparent about. I mean, I've talked to you about having ulcers on man parts.

I mean, I suppose you can't get. Where do you go from there? Last year. Last year I received a phone call from you, and it was very vulnerable. Phone call. Last year wasn't the best year of your life. Do you want to talk a little bit about that or, you know, how, you know, financially?

Only because there were some things that happened in. In my childhood which I had not dealt with, which had come out around the whole George Pell situation, with his.

Subsequent jailing and then over overturning of that jail sentence. And surprisingly, because I'm someone who feels that I'm in some degree of control over the way I think and the way I feel, I found myself in a situation where I was not in that same level of control and in fact, in a bit of a tailspin. And.

I've recovered from that. I still have some work to do in that space, and I don't know that I've made a lot of progress in that over the last few months, but I don't feel the same level of tailspin and I don't feel that I've repressed it. I feel that I'm in a much happier space with it now than what I was. But I guess the story there is everyone, 100% of us, have some degree of scar tissue through life. Whether it's something that happened when we were younger or something that happened when we were older or something. Something that may happen to us soon. Like, I'm mindful that someone in Australia today will be told they've got terminal cancer and only a short period to live, and that will put them in a tailspin. And I think we just have to acknowledge that no one goes through life unscarred. And we're all people, and we're going to have good times and bad times, and hopefully when we're not doing well, we don't have to suffer in silence. And so I was able to talk to friends and I was able to share with other people that don't think that Steve McKnight has a perfect life and that Steve McKnight has not gone through trials and difficulties, and that Steve McKnight does not go through trials and difficulties. I mean, yesterday up here at Bindi, I was. I'd asked him to give me a lesson on how to use a chainsaw, because the joke in my family is Steve shouldn't be trusted around any kind of machinery. Well, the problem with that is when you're told that over and over and over and over and over again, it becomes part of who you are. And.

I was up here with a friend on the weekend, and he treated me the same way that my dad had treated me, where he was like, stand back, Steve, I'll do this. You pick up the wooden, but I'll chop it up. And there was a real sense of anger and frustration that I experienced, but I just, again, controlled it. And then.

I said to Kim, kim, look, this is something that I don't feel like I need to do before I die to feel complete, but it's something that I would like to be able to do because it will prove to myself that I am actually capable of doing it. It's not that couldn't do it. It was just that I was never shown how. And so Kim, who's been around chainsaws and tree chopping and various other things, said, sure, let's start with chainsaw maintenance. So we pulled the chainsaw apart and gave it a clean and sharpened it up and put it back together. And he explained how it worked. And then we went out and started. He showed me some techniques and said, here's how you stand, and here's what you do, and here's some things that can go wrong. And he said, right, here's the chainsaw. Away you go. I'll stand back and watch. And for five or 10 minutes, he watched me do it. And he said, right, well, I don't need to watch you anymore, because you seem to have the hang of it.

So you've planted 200,000 trees. 200,000 trees, and now you're chopping them all down with a chainsaw. Just a joke.

No, this is all old fence posts and things. But I think the. The lesson here is sometimes we become who we're told we are, not who we want to be. And we often give power away, and then we can accept the way things are, when the truth is that we're all very capable people. You don't get to be an adult without being capable. And then it's a question of, do you want to become a victim or do you want to become empowered? And for me, the way to become empowered is to humble yourself and ask for help. And so I'm not too proud to ask for help. And I know that my friend who was here with me was really just trying to help in his own way. I don't worry about it. I'll get it done. But it was actually disempowering and I had to find another way to be empowered because my friend wasn't going to provide what I needed. I had to find another way. And so that's when it's up to us. And whether it's investing and learning how to invest a different way or it's overcoming your own version of using a chainsaw. What I would say to everyone is just because someone says you can't do it doesn't mean you can't do it if you want to do it. A saying from an early pioneer of Australia, which I've learned by heart, which isn't hard, is you find a way or you make a way. And that would be my encouragement to everyone listening to this. Don't worry about what you can't do. Try and figure out what you can do or what you want to do. And then if you can find a way or make a way and move out of being uncomfortably comfortable into uncomfortably uncomfortable, then you will grow. And as you grow, new opportunities will find you and you will find them.

I don't even have to ask you the last question because you answered it. You know you've summed up exactly how things should be for property investors. And so thank you for the last hour, Mr. McKnight, or Big Spoon as I call you. It's been absolutely awesome.

Well, of course, thank you for the opportunity to talk about the sort of journey that I've been on and to offer encouragement. Hopefully the people who have watched or listened to this have got a good return on their time investment. I pray a blessing on them. Also, of course, over you, and also to the team that you have recording this and editing it and putting it together in post production. Thank you for the opportunity.

Thanks, Steve. Thanks for hanging around the Small Talk Big Ideas podcast. We hope you enjoyed that and pulled out plenty of information that'll help you move forward. If you want to find out or listen to more podcasts, please subscribe, follow us on social media or go to ianyugate.com to find out much more about what we do and we'll see you next time.

Thanks for tuning in to the Small Talk Big Ideas podcast. We hope we've succeeded in our goal to inspire and challenge you. And we look forward to catching you on the next episode of Small Talk, Big Ideas with Ian Ugart.