Welcome to the Interview #4
Great to be hearing from Goanna this time around........enjoy everyone!!
Interview with Goanna – 29th September 2006
How did you get involved in property?
My earliest financial goal was to never ever rent as I believed at the time that rent money was effectively thrown away. Emotionally I wanted my own little nest. I understood property growth as I had watched my parents property increase 25 times from purchase in the early 70’s to sale in the late 80’s. That was pretty much the limit of my knowledge. So with a boyfriend of one and a half weeks and no finance (hadn’t even occurred to me to speak to a bank), an old Gemini and $1K in cash for a deposit I bought my first property……...
What is your property investment philosophy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?
I don’t concentrate on one strategy as such. I aim to catch growth properties just before a major growth phase and then add value in every way possible – renovating, developing, strata’ing, improved management to maximise rents and lower maintenance costs. I am an active investor rather than a buy and hold, sit and wait investor. My preferred properties are well located city fringe with an “x” factor – something that gives the property a unique selling point. I have a soft spot for owning entire complexes of multi dwellings due to the improved rental yield and the absolute control.
What is your IP / property story so far?
I began with my first property in 1989 as mentioned earlier. I did nearly everything wrong with this purchase. Bought at the beginning of the long flat period in Melbourne. It was negatively geared with no capital growth to make the hurt worthwhile. Nethertheless it taught me all the basics and saved me from repeating many mistakes on subsequent larger purchases where the consequences would have been far greater.
Life was very unglamorous. We painted because that was the only renovation we could afford. I had no car (sold during settlement period to repay deposit loan from parents), no washing machine and no disposable income as I was on around $18K and interest rates were at 16.75% (part of loan discounted down to around 12% as I was a bank employee). Saved on gym fees by walking forty five minutes to work and back each day)
Bought PPOR in Northcote in 1991. Did most things right. Bought under market at forced sale. Added value. Bought in “sleeper” suburb which did extraordinarily well through the last boom – increasing from under $200K to over a million (admittedly with the assistance of a renovation). This property made all future acquisitions possible.
Did nothing for years (I had a home AND an investment property and thought I was done)
1998 Attended wealth seminar to learn the basic concepts. Get excited. Buy two more properties (nothing special)
2000 Take a leap of faith and leave my job (supported by husband emotionally and financially). Discover internet investment forums. Soak up information like a sponge. Hugely inspired by “The Wife”. Form long term friendships with fellow investors. Feel ready to take greater risks.
2001 Bought an old mansion converted into 12 apartments in Hobart. 12% yield and approval for 8 additional dwellings on adjoining land. Over the next few years I built an additional apartment in the roof space and renovated or refurbished most of the apartments. I am currently building 6 additional townhouses on the same block with expected completion date December 2006.
2002 I bought in Launceston as described below. Upon settlement we become millionaires.
2006 Currently completing development in Hobart (from Melbourne) and looking after 1 and 3 year old. Sanity destroying combination. Sitting on 6.5 million of property with very scary debts! Wondering what next…….
Is there a story of a really good IP that you would be prepared to share with us?
In many ways my most text book purchase was a multi dwelling joint purchase made in Launceston in 2002. After receiving little interest and languishing on the market for some time we were able to buy it significantly under market value, with returns of around 11%. Given they were near new dwellings maintenance was low and depreciation was nearly double their purchase price. This meant they were cash positive but negatively geared. Things only got better as the rents were increased to market levels raising the return to around 16% and the growth boom reached Launceston within months. The bank revalued the properties after eight months and handed us back two clear titles. Four years later the properties are now worth around three times the purchase price.
Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?
Yes, a serviced apartment in Melbourne. Bought off the plan with 5x5x5 lease beginning at a 7% return with rates, body corporate etc aid for by operator. Putting aside the fact that it has been running at cash flow positive with paper losses our equity would have been far better invested elsewhere. The property has not risen in value as much as similar properties in the same area (due to a limited resell market) and we had a long legal battle at the end of the first lease to ensure that the rents remained at market rate. I was in a lead group of three owners who co-ordinated the fight against the operator and although the outcome was exactly what we hoped for I could have invested my time and energy far better elsewhere.
Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)?
Only in a small way. If I had less time restraints (translation: restraints = kids) I would be more broadly invested. I would also be a running at least one business.
What criteria do you use when selecting a property to purchase?
I need to believe the property will make money for me in the short term. There might be opportunity to add value via say a renovation or development. The rents could be under market. I might believe the market was just about to boom. I prefer properties that offer something unique as I think this is insurance against both vacancies and falling prices. I need to understand the area I am buying in and the type of tenant I would attract. For this reason I tend to focus on city fringe as this is my personally preferred living location.
Your thoughts on the next 12 months and the coming cycle?
I think the answer is very complex because there are so many markets and each is at a different point. In Melbourne, for instance, some areas have experienced significant growth over the past year while other suburbs have experienced a drop in value. So I think for some areas the next boom has already begun and for others, especially the suburbs that have a high level of first home buyers and high loan to value ratios, the next boom is a long way off. Some areas will need to see wage increases, lower interest rates or both before affordability will improve and place pressure on prices.
How do you handle the difficulties of remote development?
Delegate. Delegate. Delegate to a trusted team. Electronic communication. Spies on the ground. Don’t sweat the small stuff.
If a budding property investor asked "what are the top 5 things I should do", you would say?
Make your first purchase. Just do it. Ignore all negative talk and self doubt and just do it.
Take a business approach. Fall in love with the numbers not the property.
Surround yourself with people who are now where you would like to be in the future. This will, like magic, pull you towards your goals.
Build up a team of people you can reply upon for considered qualified advice. Maintain those relationships on both a personal and professional level. Those are the people that will create your wealth – your property manager, your accountant, retail outlets etc.
Focus more on managing the risks than planning for successes. Always have an exit strategy.
And if that same budding investor asked "what 5 things should I avoid", you would say?
Waiting until you know everything and are 110% comfortable before you buy your first property. While you wait for the perfect property another property boom will have passed you by and you could have made an excellent return on an average property bought at market value.
Giving weight to advice from people who have not achieved any level of success in the area you are pursuing.
“Pushing” property investing onto disinterested friends and family.
Delegate decisions to others as an easy way out. One way or another you need to do your due diligence. You need to either research the Property or research the person who is working on your behalf and assess their advice.
Selling just to realise your gains. If you sell it must be because you have a better plan for that money.
And in a slightly 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?
Reassess what you want from life. What are your goals now given who you are today? How do you want to spend the next 5 years of your life? What if they were your last 5 years? What changes do you need to make to prevent regret in ten years time? How can your properties help you achieve those goals? Take an open mind and look at all strategies and apply them to your situation rather than dismissing them out of hand. You will be surprised at the breadth of possibilities!
How important do you feel a team of professionals (eg, property manager, broker, accountant etc.) is to a successful investor?
Vital. It is impossible to be an expert in all the fields. Also once you get to a certain size you would be held back if you did not leverage other people’s time and expertise. In my own personal situation as a mother of two pre schoolers I could not have undertaken six renovations last year or tackled my development this year if I was not the queen of delegation.
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)
Not really. Personally I love a challenge so for each new project I venture into new territory. My investment “progression” is more about personal growth (and having the flexibility as a fulltime investor to chase interesting opportunities) than the ideal strategy. Finding a method that works and just repeating it would be equally valid. It depends a lot on whether property is a passive savings plan or an all consuming passion. And we don’t all share the same skills or risk profiles so what might be a natural progression for one would be an unmitigated disaster or living nightmare for another.
Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses?
I just don’t get the capital growth versus cash flow debate. Both play their part. Ideally I like to buy property with good return just before their growth period. That way you get the best of both worlds. The assumptions that high yield properties don’t have growth and vice versa is just plain wrong. Ditto that high yield means low quality tenants.
My preference is for properties well positioned to the town / city centre because in my view this is where the growth and rental pressure tends to be. The town would need to be of a reasonable size to satisfy my risk profile.
In terms of units versus house I think there is a lot of misunderstanding around the “land content” debate and frequently a unit might be a better investment than a house. The value of an apartment in inner Melbourne, say South Yarra or Richmond, the value is very much in the land that apartment block stands upon. 10% of a parcel of land in South Yarra would have far greater value say than an entire house block in a small regional town. That being said of course if you can afford to buy and hold blocks of land in South Yarra then over time your growth would be significant compared to an owner of a high rise unit in the same location.
What do you prefer, fixed or floating interest rates and why?
A mixture of both. A bit of certainty for planning and risk management as well as a degree of flexibility.
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?
Well “the market” is many markets. I have not recently had much time to do any intensive research as my hands are full at the moment but it appears that areas of Melbourne are seeing some decent growth and there is building pressure on rents. I believe that the Melbourne suburbs I hope to purchase in next have bottomed out and are beginning to climb. If I were in a position to buy right now I would be looking at Melbourne and Sydney.
I do not believe that the market is “harder” than when I started. The loan products available now are far more flexible than they were in 1989 and as a woman I find banks more accepting of me as a woman investor. Banks on the whole understand and support investment in property, and loan products are no longer biased towards the home owner. Information on investment strategies is also more readily available (such as this wonderful forum which sadly did not exist in 1989). If you are wanting to enter the property market now you will find a way and as some-one wisely said “get on the train, you can always change carriages”
Great to be hearing from Goanna this time around........enjoy everyone!!
Interview with Goanna – 29th September 2006
How did you get involved in property?
My earliest financial goal was to never ever rent as I believed at the time that rent money was effectively thrown away. Emotionally I wanted my own little nest. I understood property growth as I had watched my parents property increase 25 times from purchase in the early 70’s to sale in the late 80’s. That was pretty much the limit of my knowledge. So with a boyfriend of one and a half weeks and no finance (hadn’t even occurred to me to speak to a bank), an old Gemini and $1K in cash for a deposit I bought my first property……...
What is your property investment philosophy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?
I don’t concentrate on one strategy as such. I aim to catch growth properties just before a major growth phase and then add value in every way possible – renovating, developing, strata’ing, improved management to maximise rents and lower maintenance costs. I am an active investor rather than a buy and hold, sit and wait investor. My preferred properties are well located city fringe with an “x” factor – something that gives the property a unique selling point. I have a soft spot for owning entire complexes of multi dwellings due to the improved rental yield and the absolute control.
What is your IP / property story so far?
I began with my first property in 1989 as mentioned earlier. I did nearly everything wrong with this purchase. Bought at the beginning of the long flat period in Melbourne. It was negatively geared with no capital growth to make the hurt worthwhile. Nethertheless it taught me all the basics and saved me from repeating many mistakes on subsequent larger purchases where the consequences would have been far greater.
Life was very unglamorous. We painted because that was the only renovation we could afford. I had no car (sold during settlement period to repay deposit loan from parents), no washing machine and no disposable income as I was on around $18K and interest rates were at 16.75% (part of loan discounted down to around 12% as I was a bank employee). Saved on gym fees by walking forty five minutes to work and back each day
) Bought PPOR in Northcote in 1991. Did most things right. Bought under market at forced sale. Added value. Bought in “sleeper” suburb which did extraordinarily well through the last boom – increasing from under $200K to over a million (admittedly with the assistance of a renovation). This property made all future acquisitions possible.
Did nothing for years (I had a home AND an investment property and thought I was done)
1998 Attended wealth seminar to learn the basic concepts. Get excited. Buy two more properties (nothing special)
2000 Take a leap of faith and leave my job (supported by husband emotionally and financially). Discover internet investment forums. Soak up information like a sponge. Hugely inspired by “The Wife”. Form long term friendships with fellow investors. Feel ready to take greater risks.
2001 Bought an old mansion converted into 12 apartments in Hobart. 12% yield and approval for 8 additional dwellings on adjoining land. Over the next few years I built an additional apartment in the roof space and renovated or refurbished most of the apartments. I am currently building 6 additional townhouses on the same block with expected completion date December 2006.
2002 I bought in Launceston as described below. Upon settlement we become millionaires.
2006 Currently completing development in Hobart (from Melbourne) and looking after 1 and 3 year old. Sanity destroying combination. Sitting on 6.5 million of property with very scary debts! Wondering what next…….
Is there a story of a really good IP that you would be prepared to share with us?
In many ways my most text book purchase was a multi dwelling joint purchase made in Launceston in 2002. After receiving little interest and languishing on the market for some time we were able to buy it significantly under market value, with returns of around 11%. Given they were near new dwellings maintenance was low and depreciation was nearly double their purchase price. This meant they were cash positive but negatively geared. Things only got better as the rents were increased to market levels raising the return to around 16% and the growth boom reached Launceston within months. The bank revalued the properties after eight months and handed us back two clear titles. Four years later the properties are now worth around three times the purchase price.
Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?
Yes, a serviced apartment in Melbourne. Bought off the plan with 5x5x5 lease beginning at a 7% return with rates, body corporate etc aid for by operator. Putting aside the fact that it has been running at cash flow positive with paper losses our equity would have been far better invested elsewhere. The property has not risen in value as much as similar properties in the same area (due to a limited resell market) and we had a long legal battle at the end of the first lease to ensure that the rents remained at market rate. I was in a lead group of three owners who co-ordinated the fight against the operator and although the outcome was exactly what we hoped for I could have invested my time and energy far better elsewhere.
Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)?
Only in a small way. If I had less time restraints (translation: restraints = kids) I would be more broadly invested. I would also be a running at least one business.
What criteria do you use when selecting a property to purchase?
I need to believe the property will make money for me in the short term. There might be opportunity to add value via say a renovation or development. The rents could be under market. I might believe the market was just about to boom. I prefer properties that offer something unique as I think this is insurance against both vacancies and falling prices. I need to understand the area I am buying in and the type of tenant I would attract. For this reason I tend to focus on city fringe as this is my personally preferred living location.
Your thoughts on the next 12 months and the coming cycle?
I think the answer is very complex because there are so many markets and each is at a different point. In Melbourne, for instance, some areas have experienced significant growth over the past year while other suburbs have experienced a drop in value. So I think for some areas the next boom has already begun and for others, especially the suburbs that have a high level of first home buyers and high loan to value ratios, the next boom is a long way off. Some areas will need to see wage increases, lower interest rates or both before affordability will improve and place pressure on prices.
How do you handle the difficulties of remote development?
Delegate. Delegate. Delegate to a trusted team. Electronic communication. Spies on the ground. Don’t sweat the small stuff.
If a budding property investor asked "what are the top 5 things I should do", you would say?
Make your first purchase. Just do it. Ignore all negative talk and self doubt and just do it.
Take a business approach. Fall in love with the numbers not the property.
Surround yourself with people who are now where you would like to be in the future. This will, like magic, pull you towards your goals.
Build up a team of people you can reply upon for considered qualified advice. Maintain those relationships on both a personal and professional level. Those are the people that will create your wealth – your property manager, your accountant, retail outlets etc.
Focus more on managing the risks than planning for successes. Always have an exit strategy.
And if that same budding investor asked "what 5 things should I avoid", you would say?
Waiting until you know everything and are 110% comfortable before you buy your first property. While you wait for the perfect property another property boom will have passed you by and you could have made an excellent return on an average property bought at market value.
Giving weight to advice from people who have not achieved any level of success in the area you are pursuing.
“Pushing” property investing onto disinterested friends and family.
Delegate decisions to others as an easy way out. One way or another you need to do your due diligence. You need to either research the Property or research the person who is working on your behalf and assess their advice.
Selling just to realise your gains. If you sell it must be because you have a better plan for that money.
And in a slightly 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?
Reassess what you want from life. What are your goals now given who you are today? How do you want to spend the next 5 years of your life? What if they were your last 5 years? What changes do you need to make to prevent regret in ten years time? How can your properties help you achieve those goals? Take an open mind and look at all strategies and apply them to your situation rather than dismissing them out of hand. You will be surprised at the breadth of possibilities!
How important do you feel a team of professionals (eg, property manager, broker, accountant etc.) is to a successful investor?
Vital. It is impossible to be an expert in all the fields. Also once you get to a certain size you would be held back if you did not leverage other people’s time and expertise. In my own personal situation as a mother of two pre schoolers I could not have undertaken six renovations last year or tackled my development this year if I was not the queen of delegation.
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)
Not really. Personally I love a challenge so for each new project I venture into new territory. My investment “progression” is more about personal growth (and having the flexibility as a fulltime investor to chase interesting opportunities) than the ideal strategy. Finding a method that works and just repeating it would be equally valid. It depends a lot on whether property is a passive savings plan or an all consuming passion. And we don’t all share the same skills or risk profiles so what might be a natural progression for one would be an unmitigated disaster or living nightmare for another.
Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses?
I just don’t get the capital growth versus cash flow debate. Both play their part. Ideally I like to buy property with good return just before their growth period. That way you get the best of both worlds. The assumptions that high yield properties don’t have growth and vice versa is just plain wrong. Ditto that high yield means low quality tenants.
My preference is for properties well positioned to the town / city centre because in my view this is where the growth and rental pressure tends to be. The town would need to be of a reasonable size to satisfy my risk profile.
In terms of units versus house I think there is a lot of misunderstanding around the “land content” debate and frequently a unit might be a better investment than a house. The value of an apartment in inner Melbourne, say South Yarra or Richmond, the value is very much in the land that apartment block stands upon. 10% of a parcel of land in South Yarra would have far greater value say than an entire house block in a small regional town. That being said of course if you can afford to buy and hold blocks of land in South Yarra then over time your growth would be significant compared to an owner of a high rise unit in the same location.
What do you prefer, fixed or floating interest rates and why?
A mixture of both. A bit of certainty for planning and risk management as well as a degree of flexibility.
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?
Well “the market” is many markets. I have not recently had much time to do any intensive research as my hands are full at the moment but it appears that areas of Melbourne are seeing some decent growth and there is building pressure on rents. I believe that the Melbourne suburbs I hope to purchase in next have bottomed out and are beginning to climb. If I were in a position to buy right now I would be looking at Melbourne and Sydney.
I do not believe that the market is “harder” than when I started. The loan products available now are far more flexible than they were in 1989 and as a woman I find banks more accepting of me as a woman investor. Banks on the whole understand and support investment in property, and loan products are no longer biased towards the home owner. Information on investment strategies is also more readily available (such as this wonderful forum which sadly did not exist in 1989). If you are wanting to enter the property market now you will find a way and as some-one wisely said “get on the train, you can always change carriages”
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