Reply: 2.1
From: Jeremy Laws
Well thanks for the interest!
What I do is essentially very simple, but has worked well, and seems to be what a lot of people have reached independently. A little about the history first...
I started buying property while my parents were setting themselves up for retirement. I didn't really know what to buy, so I bought neither a true IP, nor a property I would live in. My second property was similar though I 'rented' to my then girlfriend. I became very short of cash so looked for properties that would at least cover themselves, and hopefully cover the losses on my 'neither/nor' properties. This strategy worked a treat and I have replicated it ever since. My first two properties after a time started to increase in value and I used the equity and cashflow to buy an inner city terrace, combined with a pair of 'proper' IP's providing the cashflow to cover my losses. The terrace increased in value in short order and I took out an LOC to buy more property. Question then was 'What sort?' I had a major setback at work at about the same time and I guess because of this I was able to be a little radical. I ended up chasing cashflow to fund myself so came up with either 1)buying commercial property in Australia, or 2) buying residential property in the USA. I felt that overall it was a better risk getting the same returns from residential property in the US than what I perceived as slightly more risk and less understood (to me) commercial property in Australia. I also had the massive benefit of turning a 10% equity LOC into a 10% deposit in California, thus almost doubling my portfolio in one deal. The cashflow from the USA helped with everything else as well. I had decided to renovate my terrace, which turned out to be a nightmare, taking over 2 years, and over $250,000 so I needed all the cash I could get. This was when I discovered the use of credit cards to get you out of trouble if needed. Kellie Dutton and I found out about the ground lease financing deals on big cashflow properties in USA and tried to do this as well. Nearly made it too! Learnt a lot and almost got an 86 unit apartment complex in Miami with only $50,000AUD of my credit cards at risk. The cash on cash return on that deal would have been phenomenal, but I learnt a lot, and will hopefully soon get my $50k back! So, where too next? Wrapping appeared, and whilst not nearly as good as the US (one of my apartment complexes there was in fact 'wrapped' to me so I knew the process well) it offered as good as you could get in good 'ol Oz. All but one of the deals I did collapsed through essentially being too high a price of property. I ended up with very good rental returning property, and massive capital growth on those in again a very short space of time. In conjunction with this I bought my first business 'Berowra Waters Inn' which came free with a stunning property. So now I am learning how to make restaurants work. In order to do this I have sold a couple of properties, which may turn out to be silly. If berowrawatersinn.com stops operating, you will know I was silly!
The trick as I see it, is to buy two or three cash positive properties in order to cover the loss on a less 'cashy' but higher capital growth property. You then lever off the faster increase in CG in order to buy more of the cashflow properties. These in turn go up.
It MUST be recognised that property at the moment is historically (in this country) overpriced. We have had a great run though! We WILL have a flattening out of the market for probably 2-3 years at least, then I guess an 88-89 style boom after which 'watch out'. I am particularly scared of inner city (SYD-MEL mainly) units/townhouses one of which I bought a year or so ago, and I have amazingly sold at a small profit. I believe a couple of years (1-2) and these properties will be available at GREAT prices.
I was asked to add up what I have a while ago by a friend and was stunned that in AUD terms I 'control' about 7m worth of property. It is fairly highly geared, and I must point out I am selling about $500k worth to fund the restaurant, so it is reducing, but the numbers still look big! I made $1m inside 5 years, and bought my first property 8 years ago. The important thing is that anyone can do this, as John Symonds famously says 'It's not rocket science ya know' and it all started when I read about a school teacher's book on property investment in the Financial Review.
I hope you all found that interesting - it's nice to read about real stories, without disguising wins and losses, and without exaggerating. I learnt from a lot of generous people, and I feel the same as they do. Hopefully one day someone will get something out of the things I have done.