Interview with skater – 11th January 2007
How did you get involved in property?
I saw an ad in the local paper for a Mortgage Reduction Company. We had endured sheer torture during the time when interest rates hit 17.5% & Hubby had been retrenched, so our main aim was to get rid of the mortgage as soon as possible because we never wanted to be in that situation again. That meeting was to change out lives.
The strategy that Company was using was merely to refinance your home into a LOC, use your credit card & pay it off each month from the LOC. Same thing you hear a lot these days, but it was new back then. They would also monitor it for you, to make sure you didn’t get off track (for a price, of course).
Next he mentioned that we would also be able to use the equity in our PPOR to help purchase an IP. Something we hadn’t even thought about & quite frankly believed that ordinary people like us didn’t do those sorts of things. We were also Self Employed at that time & on an extremely low income as a result of the “Recession we had to have” as that was the only way we could get any income in.
We were extremely excited about how all this would help our situation & thought long & hard about that meeting. Although we liked the concept, there was no way we would (or could, for that matter) pay the exorbitant prices this Company was going to charge to put this in place for us. I did quite a bit of research & discovered that the same product the Mortgage Reduction Company was promoting was available through some of the Banks.
Next step was to find out if it was possible that we could really own a second house. Houses in our area were expensive, & the rents received wouldn’t cover the costs & we couldn’t afford another house if we couldn’t cover costs. We were living in Wollongong at the time & the only homes that came close to being affordable were in areas we really didn’t like. So we went for a drive to Campbelltown.
Finance for this first IP proved to be quite difficult as our incomes were so very small. We eventually got approval for a loan of $95k through some minor bank & then proceeded to let the CBA know as they had the existing loan. All of a sudden they were willing to finance us (wouldn’t touch us with a barge pole before the other bank said yes), so we got the deal we wanted.
We found there were some houses in Campbelltown that would give a yield of 10%, which was our aim (long before Steve McKnight & his 11 second solution). The house we purchased was at auction & was a Mortgagee Sale. Purchase price $90500. We had to do a reno on it & had it revalued after a few months at $120k. I think the costs of the reno came in at around $4k. The tenant paid $185pw.
What is your property investment philosophy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?
All the first ones were a very definite CF+. Over time, though, things change. We are predominately buy & hold, however we have also sold some, done some renos, have one that has development potential, have a block of 4 flats (they are the only flats we own) & hold in both Sydney & regional areas.
What is your IP / property story so far?
After that first IP, we didn’t buy any more for a while. We thought we were doing OK. After several years the equity grew on both the IP & our PPOR, so we did a silly thing. Get a loan & start another Business. By this time our fledgling Business was doing a lot better & our incomes had grown, although they were still well below the average.
We opened a Roller Skating Rink. This is a Business that we both have intimate knowledge of & we did a lot of research, so jumped in. We were seriously undercapitalised & we quickly realised that we were in serious financial trouble. Add to this the fact that both Businesses were in a partnership & so were the houses. Professional advise told us to cut our losses, sell our houses & start again, hopefully not as a bankrupt.
After thinking long & hard about the situation we decided that we had a 50/50 chance of surviving without going bankrupt, so we took a huge risk. The bank had already given us approval for some more funds a couple of months prior to this happening, on the strength of a profit & loss that I had drawn up, so I rang to find out if this money was still available to us, or would we have to fill in more forms. It was, so we decided that anything that didn’t cost us anything & perhaps gave a little positive cash flow back wouldn’t do any harm & if we got out of this mess, we would have something to fall back on.
The IP had performed really well, holding it’s own as well as growing in value, so we decided that we would buy another. After researching, the best deals I could find at the time were in Tassie, so I jumped on a plane & spent 2 days in Tassie & came home with two more IPs. One had a 20% yield & the other was around 12%.
The next part of our strategy was what saved us from going under. We were tied to a lease on the building & were losing around $2k per week. We had around 18 months to go & there was a very grotty, cockroach infested flat above the building. We moved in & sold the PPOR. Hubby got a job in Sydney (as it paid more than local jobs), while I ran the Skating Rink. The kids both worked at the rink whenever they weren’t at school. Hubby worked at the rink with me on Friday nights & weekends. On Sunday mornings, when the rink wasn’t open, I got a job in a local call centre.
With the proceeds from the sale of the PPOR, we put aside enough to see us through our time at the rink & the rest we used as a deposit on another house. This one would also be cash flow positive due to the cash deposit. This was to be our new PPOR when we finished up at the rink, but would serve as the 4th IP in the meantime.
After finishing at the rink, Hubby got a new better job, so we decided to move closer to his work & rent, so our nice house remained an IP. After a little time we decided that the 4 IPs that we had, had really performed very well, so decided it was time to buy more.
Again I flew interstate, this time to Vic, & bought one there, then next was rural NSW where we bought a few. Also bought a new PPOR which has a second house at the rear.
The most recent purchases were all in the local area where we are now living.
Is there a story of a really good IP that you would be prepared to share with us?
I really like the first IP. We bought well & it’s in a nice area. It has grown in value to be worth around $250k now. It has paid it’s own way since day 1. It is new enough that we still get depreciation from it. We usually get good tenants in it & it doesn’t have a lot of maintenance issues. What more could you want?
Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?
One of the houses in Tassie turned out to have the most terrible feral neighbours who had kids that routinely broke the windows on houses in the street, including our IP. There wasn’t much in the way of a good PM in the area either, so we decided to cut our losses & sell. We really should have waited a year to sell because after it sold prices took off. We didn’t lose any money on it, but we didn’t make any either.
Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)?
Sheesh, with our track record of Business, I think I will permanently give that a miss. It would probably be good to educate myself about other investment vehicles, but haven’t done it yet. Won’t rule it out though.
What criteria do you use when selecting a property to purchase?
When investing out of the area, I usually try to see as many as I can in the couple of days I am in the area. I take with me a questionnaire that I fill in on each property & also try to get as many pictures as possible. When I get home I sit down & eliminate them one at a time, together with Hubby.
For local IPs I get Hubby to go over them with a fine tooth comb. He is from the building industry, so I don’t bother with a building report if he has seen it (unless the bank requests one).
I love auctions, but only if there is little in the way of competition. If buying private treaty, I usually make very low offers. I believe in making money from the start. I prefer houses on decent size blocks of land.
What structure do you use for your investing?
We have some in our own names & some in a Discretionary Trust.
What are your views regarding spreading your risk and investing interstate?
We are currently only holding one interstate property. Have never had an issue with it. We sold our second Tassie property with a nice fat capital gain & no problems either, however PM selection is of the utmost importance. One of the main reasons we sold the first Tassie property was that it was a pain in the neck. We are having some nasty issues with a regional PM (not interstate, but it might as well be as it is 9 hours from home) ATM.
If a budding property investor asked "what are the top 5 things I should do", you would say?
Join the forum (there is just so much knowledge on here).
Know your area.
Get a good Mortgage Broker.
Don’t overcapitalise.
Get a good PM.
And if that same budding investor asked "what 5 things should I avoid", you would say?
Analysis Paralysis, just get out there & do it.
Don’t invest solely to save on tax. If the investment is tax effective, great, but that shouldn’t be the sole objective.
Off the plan. Can be great if you know what you are doing & in the right market, but could spell real trouble for a newbie.
Marketing Companies. You know the sort, they will do everything for you, can include the two tier ones. Basically anything that controls everything for you is going to want huge fees for doing so. Best to learn how to do it for yourself.
Investment seminars. Not the cheap ones, but those that cost many thousands of dollars. There goes the deposit for your first IP.
And in a slighty different vein - what would you advise the property investor who maybe has a portfolio of properties, but is at a loss as to how to proceed?
I think the best thing that an investor can do is to see a Mortgage Broker that knows how to structure things. At one stage, we had a portfolio of around 5 properties & wanted to buy another very cheap cash flow positive IP & were having real trouble getting a Broker that could put the deal together for us.
Then I called Rolf & the rest is history.
Did you learn any lessons while in business that has helped you with your investing?
Yes. Don’t get into business!
Seriously though, investing is a business, so treat it like one. When rents can be increased, increase them. When tenants want you to spend money on things that are not necessary, don’t do it.
Do you consider that there is any natural progression for an investor? (eg. From owning a few properties, to owning many, to being a developer)
No, not really. Sure some will, but the majority of investors will hold only one property. I think if you are one of the few that do have a larger portfolio, then you are more inclined to want to experiment with other things, but that could just be different techniques, not necessarily development.
Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses?
I am quite fond of some of the regional properties for the fact that they can hold their own, still get good CG AND don’t cost an arm & a leg in Land Tax. In saying that though, most of the portfolio is in Outer Sydney these days. I do prefer houses as it is the land that appreciates & you also don’t have to pay a body corp.
What do you prefer, fixed or floating interest rates and why?
I have a mix. Don’t really care.
Finally, where do you see the market at the moment and do you think the current environment is making it harder for newer investors than when you started?
I think it is going to stay flat for some time yet. Rents really do need to catch up.
I think it is much harder at the moment for a new investor. When I started you could get 10% yield in Campbelltown and I am sure that there were many other areas that had a similar or better yield.
Comments..... http://www.somersoft.com/forums/showthread.php?p=263481#post263481
How did you get involved in property?
I saw an ad in the local paper for a Mortgage Reduction Company. We had endured sheer torture during the time when interest rates hit 17.5% & Hubby had been retrenched, so our main aim was to get rid of the mortgage as soon as possible because we never wanted to be in that situation again. That meeting was to change out lives.
The strategy that Company was using was merely to refinance your home into a LOC, use your credit card & pay it off each month from the LOC. Same thing you hear a lot these days, but it was new back then. They would also monitor it for you, to make sure you didn’t get off track (for a price, of course).
Next he mentioned that we would also be able to use the equity in our PPOR to help purchase an IP. Something we hadn’t even thought about & quite frankly believed that ordinary people like us didn’t do those sorts of things. We were also Self Employed at that time & on an extremely low income as a result of the “Recession we had to have” as that was the only way we could get any income in.
We were extremely excited about how all this would help our situation & thought long & hard about that meeting. Although we liked the concept, there was no way we would (or could, for that matter) pay the exorbitant prices this Company was going to charge to put this in place for us. I did quite a bit of research & discovered that the same product the Mortgage Reduction Company was promoting was available through some of the Banks.
Next step was to find out if it was possible that we could really own a second house. Houses in our area were expensive, & the rents received wouldn’t cover the costs & we couldn’t afford another house if we couldn’t cover costs. We were living in Wollongong at the time & the only homes that came close to being affordable were in areas we really didn’t like. So we went for a drive to Campbelltown.
Finance for this first IP proved to be quite difficult as our incomes were so very small. We eventually got approval for a loan of $95k through some minor bank & then proceeded to let the CBA know as they had the existing loan. All of a sudden they were willing to finance us (wouldn’t touch us with a barge pole before the other bank said yes), so we got the deal we wanted.
We found there were some houses in Campbelltown that would give a yield of 10%, which was our aim (long before Steve McKnight & his 11 second solution). The house we purchased was at auction & was a Mortgagee Sale. Purchase price $90500. We had to do a reno on it & had it revalued after a few months at $120k. I think the costs of the reno came in at around $4k. The tenant paid $185pw.
What is your property investment philosophy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?
All the first ones were a very definite CF+. Over time, though, things change. We are predominately buy & hold, however we have also sold some, done some renos, have one that has development potential, have a block of 4 flats (they are the only flats we own) & hold in both Sydney & regional areas.
What is your IP / property story so far?
After that first IP, we didn’t buy any more for a while. We thought we were doing OK. After several years the equity grew on both the IP & our PPOR, so we did a silly thing. Get a loan & start another Business. By this time our fledgling Business was doing a lot better & our incomes had grown, although they were still well below the average.
We opened a Roller Skating Rink. This is a Business that we both have intimate knowledge of & we did a lot of research, so jumped in. We were seriously undercapitalised & we quickly realised that we were in serious financial trouble. Add to this the fact that both Businesses were in a partnership & so were the houses. Professional advise told us to cut our losses, sell our houses & start again, hopefully not as a bankrupt.
After thinking long & hard about the situation we decided that we had a 50/50 chance of surviving without going bankrupt, so we took a huge risk. The bank had already given us approval for some more funds a couple of months prior to this happening, on the strength of a profit & loss that I had drawn up, so I rang to find out if this money was still available to us, or would we have to fill in more forms. It was, so we decided that anything that didn’t cost us anything & perhaps gave a little positive cash flow back wouldn’t do any harm & if we got out of this mess, we would have something to fall back on.
The IP had performed really well, holding it’s own as well as growing in value, so we decided that we would buy another. After researching, the best deals I could find at the time were in Tassie, so I jumped on a plane & spent 2 days in Tassie & came home with two more IPs. One had a 20% yield & the other was around 12%.
The next part of our strategy was what saved us from going under. We were tied to a lease on the building & were losing around $2k per week. We had around 18 months to go & there was a very grotty, cockroach infested flat above the building. We moved in & sold the PPOR. Hubby got a job in Sydney (as it paid more than local jobs), while I ran the Skating Rink. The kids both worked at the rink whenever they weren’t at school. Hubby worked at the rink with me on Friday nights & weekends. On Sunday mornings, when the rink wasn’t open, I got a job in a local call centre.
With the proceeds from the sale of the PPOR, we put aside enough to see us through our time at the rink & the rest we used as a deposit on another house. This one would also be cash flow positive due to the cash deposit. This was to be our new PPOR when we finished up at the rink, but would serve as the 4th IP in the meantime.
After finishing at the rink, Hubby got a new better job, so we decided to move closer to his work & rent, so our nice house remained an IP. After a little time we decided that the 4 IPs that we had, had really performed very well, so decided it was time to buy more.
Again I flew interstate, this time to Vic, & bought one there, then next was rural NSW where we bought a few. Also bought a new PPOR which has a second house at the rear.
The most recent purchases were all in the local area where we are now living.
Is there a story of a really good IP that you would be prepared to share with us?
I really like the first IP. We bought well & it’s in a nice area. It has grown in value to be worth around $250k now. It has paid it’s own way since day 1. It is new enough that we still get depreciation from it. We usually get good tenants in it & it doesn’t have a lot of maintenance issues. What more could you want?
Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?
One of the houses in Tassie turned out to have the most terrible feral neighbours who had kids that routinely broke the windows on houses in the street, including our IP. There wasn’t much in the way of a good PM in the area either, so we decided to cut our losses & sell. We really should have waited a year to sell because after it sold prices took off. We didn’t lose any money on it, but we didn’t make any either.
Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)?
Sheesh, with our track record of Business, I think I will permanently give that a miss. It would probably be good to educate myself about other investment vehicles, but haven’t done it yet. Won’t rule it out though.
What criteria do you use when selecting a property to purchase?
When investing out of the area, I usually try to see as many as I can in the couple of days I am in the area. I take with me a questionnaire that I fill in on each property & also try to get as many pictures as possible. When I get home I sit down & eliminate them one at a time, together with Hubby.
For local IPs I get Hubby to go over them with a fine tooth comb. He is from the building industry, so I don’t bother with a building report if he has seen it (unless the bank requests one).
I love auctions, but only if there is little in the way of competition. If buying private treaty, I usually make very low offers. I believe in making money from the start. I prefer houses on decent size blocks of land.
What structure do you use for your investing?
We have some in our own names & some in a Discretionary Trust.
What are your views regarding spreading your risk and investing interstate?
We are currently only holding one interstate property. Have never had an issue with it. We sold our second Tassie property with a nice fat capital gain & no problems either, however PM selection is of the utmost importance. One of the main reasons we sold the first Tassie property was that it was a pain in the neck. We are having some nasty issues with a regional PM (not interstate, but it might as well be as it is 9 hours from home) ATM.
If a budding property investor asked "what are the top 5 things I should do", you would say?
Join the forum (there is just so much knowledge on here).
Know your area.
Get a good Mortgage Broker.
Don’t overcapitalise.
Get a good PM.
And if that same budding investor asked "what 5 things should I avoid", you would say?
Analysis Paralysis, just get out there & do it.
Don’t invest solely to save on tax. If the investment is tax effective, great, but that shouldn’t be the sole objective.
Off the plan. Can be great if you know what you are doing & in the right market, but could spell real trouble for a newbie.
Marketing Companies. You know the sort, they will do everything for you, can include the two tier ones. Basically anything that controls everything for you is going to want huge fees for doing so. Best to learn how to do it for yourself.
Investment seminars. Not the cheap ones, but those that cost many thousands of dollars. There goes the deposit for your first IP.
And in a slighty different vein - what would you advise the property investor who maybe has a portfolio of properties, but is at a loss as to how to proceed?
I think the best thing that an investor can do is to see a Mortgage Broker that knows how to structure things. At one stage, we had a portfolio of around 5 properties & wanted to buy another very cheap cash flow positive IP & were having real trouble getting a Broker that could put the deal together for us.
Then I called Rolf & the rest is history.
Did you learn any lessons while in business that has helped you with your investing?
Yes. Don’t get into business!
Seriously though, investing is a business, so treat it like one. When rents can be increased, increase them. When tenants want you to spend money on things that are not necessary, don’t do it.
Do you consider that there is any natural progression for an investor? (eg. From owning a few properties, to owning many, to being a developer)
No, not really. Sure some will, but the majority of investors will hold only one property. I think if you are one of the few that do have a larger portfolio, then you are more inclined to want to experiment with other things, but that could just be different techniques, not necessarily development.
Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses?
I am quite fond of some of the regional properties for the fact that they can hold their own, still get good CG AND don’t cost an arm & a leg in Land Tax. In saying that though, most of the portfolio is in Outer Sydney these days. I do prefer houses as it is the land that appreciates & you also don’t have to pay a body corp.
What do you prefer, fixed or floating interest rates and why?
I have a mix. Don’t really care.
Finally, where do you see the market at the moment and do you think the current environment is making it harder for newer investors than when you started?
I think it is going to stay flat for some time yet. Rents really do need to catch up.
I think it is much harder at the moment for a new investor. When I started you could get 10% yield in Campbelltown and I am sure that there were many other areas that had a similar or better yield.
Comments..... http://www.somersoft.com/forums/showthread.php?p=263481#post263481
