Once upon a time...

Well, back in 1999 in fact, just before the first FHBG, a young bloke fresh out of uni bought a house. He had saved up a good deposit working part time at uni while living with his folks and trading cars for profit from the backyard so only took out a 60% loan "just to be safe". He was too timid to realise an 80% LVR might have been a good idea and had no-one to guide him in such things. He just thought he wanted to move out of home and really didn't want to rent. He bought his house for $146k when his salary was a tick over $30k per year. It was an old 3x1 on 740sqm in Rivervale in Perth - a pretty down and out suburb at the time. He sold it in 2006 just after getting married for $280k. He was happy there was no CGT to pay.

After a couple of years, he bought a couple of property investing books and got dangerous. He asked the brother of his ex girlfriend (who knew about such stuff coz his old man was a seasoned builder / developer) if he knew of any property opportunities around. Turned out that he knew of a particular syndicate member who had pulled out of a bargain block next to the Joondalup (Perth) city centre. It was a new duplex townhouse proposition and there was a small window of opportunity to put their foot on the land.

So the young bloke, now armed with the knowledge he could draw down both his deposit, savings since and new equity went in with two others to buy the land as a very silent partner as he now had a pretty busy day job. The land cost $170k. The two (large and very nice) townhouses cost $500k to build. They sold for over $600k each after over four years of faffing around, netting this young bloke just over $100k once taxes and holding costs had been paid. The young bloke was a bit disillusioned though - the build had taken far too long and most of the profit came from movement in the market so he figured he should have just bought a couple of IPs instead. He would have done just as well and not have had to get back into the market and pay heaps of stamp duty and CGT. The seasoned developers (one of them was the builder) in the syndicate were quite happy with the result - the young bloke was pretty happy overall though as the builder had provided him with the finance for the build. I think it may have been because he liked the idea of an up and coming property investor as a son in law but alas it was not to be...

Anyway, while he was waiting for the Joondalup property to get built, he happened to notice a 4x2+study home open down the road in Rivervale. It was a 5% yield proposition and near new so had good depreciation. So he thought he'd try something like that as well. He bought it for $230k with an offer on the same day as viewing it in 2003. Now it rents for $400pw and most of the depreciation is gone. Its current value would be around $550k. One day the tenants flooded the whole back of the house but fortunately the LL insurance did pay up to fix the carpets...

A bit later on this bloke met the love of his life and before they got married he encouraged her to buy a house so she could at least get the FHBG. She went and bought a 2x1+sleepout house on a triplex development block in Nollamara (Perth) for $197k, without him even seeing the place. This was in 2003. They just sanded the floors and lived in it and sold it three and a half years later for $515k. Dunno what happened there but once again not paying CGT was a good thing.

A little after getting married, following the eventual sale and repatriation of the proceeds of the townhouses in Joondalup, a decision was made that this couple didn't want to live in Nollamara forever, as it wasn't really a step up from Rivervale. So they bought a small and old 4x2 + pool house in City Beach in Perth on 900sqm in 2005 to rent out as they couldn't afford to live in it. It cost $805k and today would be worth around $1.7m. The bloke bought it without his wife seeing it as she was sick that day. Some might suggest this was the riskiest part of the whole venture but he was only paying her back for doing the same thing to him in Nollamara. Luckily they trust each other.... :rolleyes:

It rented for the princely sum of $540 per week and really was a terrible investment. They put a cash offer in on this one on the advice of an inept mortgage broker who said it would be "no worries". Following signing up with a $50k deposit that broker apologised for using the wrong calculator and politely informed the couple that they were on their own before disappearing quickly. Luckily this lovely couple were able, amid a mild panic, to find a bank who would provide the necessary finance, provided the necessary cross-collateralisation also occurred as their combined salary was a bit more significant by then...

And it's getting late so I'll continue the next installment of this story when I get a chance.... as you can see this bloke (and couple) was no "pro" investor, just bumbling along from what seemed like one good idea to the next. Amazing what can happen with that type of strategy...
 
Aggregate WA residential land values from 1999-2008 ($B)

84.8
95.3
100.8
117.9
135.0
143.7
161.2
207.8
310.4
340.7

Buy and hold worked very well in Perth for the past decade, a +300% inflation in land values.
 
Its got everything

Rags to riches - love story, etc all we need now is some tragedy - maybe a murder or some kind of secret service investigation, before culminating in a happy ending. This has got brangelina written all over it.
 
So, it was at this point that this young couple decided to start a family and they felt it was desirable for the new mum to stay at home with baby/ies at least until they went to school. Which meant the man of the house had to find a better paying job. As is the case for many in Perth, this initially involved a move to Karratha, where accomodation would be paid for by the company and all their debt could be made tax-deductible. This involved living in a much nicer, new 4x2 house and meant they could now buy a bed instead of sleeping on a mattress on the floor. A nice change to compensate for the rather warm weather outside...

You see, property investing by then had become a bit addictive and they were very keen not to spend money on unnecessary consumer items. Being notoriously tight with their money and naturally risk averse, this mindset has been very difficult for both of them to shake. Nevertheless it meant they were able to keep saving a decent chunk of their income as they went along. They always maintained large buffers and while this was a source of comfort to them it also meant they didn't leverage as much as they could and should have...

Following the recognition that Karratha wasn't really the family friendly place for them, another move was initiated within a year - this time to Hobart. You see, I'm told this bloke has a profession which is rather unusual in that a pay rise could be achieved with a move from Karratha to Hobart...

In Hobart they bought a PPOR, lived very nicely for a couple of years and made some wonderful friends. It was at this point they stumbled upon this forum - I think it was from a google search on HDTs or something. Suddenly this couple, who were once pretty happy with their investing progress, realised where they could have been from an investing POV if they actually had some idea of what they were doing. Lots of old threads were dug up and a lot of "aha" moments had. This couple were at this stage kicking themselves for not thinking about it earlier but it actually never occurred to them their might be useful PI info out there on the internet. They must be pretty slow on the uptake!

It was also at this point they bought a couple of Tassie IPs just to keep things moving along as they hadn't bought anything in awhile. One IP yielded 5% gross and the other 7% - a small but pleasant step up from what they were used to. These IPs haven't yet done much from a CG point of view but with truly excellent property management they just tick along in the background and don't require much effort. Between the two of them there is an exposure of about $560k - a 4x1 DLUG on a triplex site and a 3x1.

After a couple of years, with an offer for employment back in Perth that was "too good to refuse", they sold their Hobart PPOR, making just a little more from it than it cost them in stamp duty and agent's fees. They got back to Perth just as the GFC was in full swing and the ASX was on its knees. So, seeing bank shares were netting fully franked dividends in excess of 10%, this couple decided to use the cash from their Hobart PPOR to enter the share market for the first time. Unfortunately, being all new to the ASX, they didn't back their own judgement as well as they should have and bought a "diworsified" portfolio of shares, including shares that weren't the same screaming bargains the banks were. Nevertheless, over the course of 2009 and up to this date, the share portfolio is up $250k and very cashflow positive so they can't complain. They are yet to sell any of their shares, which were financed at the time with a combination of predominantly RIP equity and a small margin loan (they would like to extend their thanks to keithj for that idea!). With that buffer in place now they have again increased their exposure.

At the same time, they thought Karratha properties were looking like better value than they remembered when they were there. One in particular came up around the corner from where they used to live. It was purchased for $805k, with rent of $1700pw and a gubbermint tenant. The rent has now just gone up to $1900pw. It was only when going through their bank statements that this couple properly realised the true benefits that good yields can provide. Instead of being a bit of a burden, property investing suddenly became quite a refreshing pastime. That property was only a few years old (so had good depreciation) and would now be worth around $1m, which is not a bad performance within a year. However, as has been pointed out to them by a member of this forum (who I will let claim the quote if he wants to) they know that it is income that gives freedom rather than net worth so are concentrating on that now.

So, after all that, this couple (and their two kids) have now moved into their house on the beach and have a positively geared portfolio of assets in excess of $5m with an LVR sitting around 50%. By now the man of the house also has a pretty well paid job which also helps kick the investing along. This means they have been scouring around for the next deal, with a particular focus on a new area for them being CIPs. They may have to dump their share portfolio to dip their toe in that pond but there seem to be a few good opportunities around at the moment so that may well be worth doing. As per usual they will probably just bump into something that looks good at the time and buy it and so the story will go on...
 
Thanks for the great read!

Like the fact that just being in the game in the early stages set up alot without needing the big investment knowledge beforehand, is our idea at this early stage and great to see someone with such success from it.

Cant wait to read the CIP adventures, sure many on here interested in the transition/ addition :)

Cheers
 
Great story HE, props.

Not sure if q's are allowed, but just curious, and to put things into perspective, what is the annual income from employment for this bloke and wife?

btw, I think there's a lot to be said for finding a high paying job, and the years of study and commitment needed to get to this point, so it's certainly an achievement in itself.

Most high income earners can have the nice PPOR and beach house, but I think only a smaller amount change their mindset to create passive investments that can replace their earned income and give real freedom.
 
Thank you...what I really appreciated from this story was the timing...I could see that your slow start very quickly grew momentum and this came out very clearly in this story....kind of inspiring. The question is, can this sort of story be replicated Post 2009??? :confused:

Eg. "Well, back in 2009 in fact,....."
 
great story!

the only disappointing bit was when I got to the end of the first installment...but then i realised you had the second installment...only to be disappointed again at the end of the second installment! I look forward to the next :)
 
Inspirational story Hi Equity, and thank you for sharing the details, which enrich the story no end. I know how much of a step it was for you to share those personal details. Was it cathartic ??


Good luck with your next expedition to find passive income that will unleash the shackles of your highly paid job. I know you have other pursuits and passions, and hopefully these can be explored further with the release of more time.


As mentioned by others, a highly paid job is a huge asset in the beginning. But there needs to be more than that. There are 100's of thousands of workers on big money that go nowhere. What is even more valuable, is when that high paying job is coupled with a desire to redirect those funds from living frugally into something productive, such that over time, the compounding effect really starts to kick in. You have demonstrated you have what it takes to be part of that elite club. It is a quick way to a nice lifestyle and ultimately freedom.


A valued member of the forum. Please keep contributing Hi Equity, you have a very clear and logical writing style. Can't wait for the next instalment.
 
Thanks for the positive feedback everyone - much appreciated!

Not sure if q's are allowed, but just curious, and to put things into perspective, what is the annual income from employment for this bloke and wife?

Hi JIT

I'm happy to pass on any questions - so ask away. :) The lady of the house hasn't been in paid employment since they started a family. The bloke has enjoyed a pretty linear increase in salary from $30k 11 years ago to over $200k now, well over if what I'm informed is coming soon actually happens...

I know how much of a step it was for you to share those personal details. Was it cathartic ??

Hi Dazz

It was just a psychological hurdle for him to overcome, like any other. Bit like buying that first property - it seemed like such a big thing at the time but when he looked back at it he wasn't sure what all the fuss was about. It very much helps to take an example from those who have gone before and I can't think of anyone who is more prolific in that respect than your good self...

There are 100's of thousands of workers on big money that go nowhere. What is even more valuable, is when that high paying job is coupled with a desire to redirect those funds from living frugally into something productive, such that over time, the compounding effect really starts to kick in. You have demonstrated you have what it takes to be part of that elite club. It is a quick way to a nice lifestyle and ultimately freedom.

High praise indeed coming from you Dazz and much appreciated. I guess the lifestyle is there but the financial freedom still seems far away for them at this point so that remains to be seen. I totally agree on your first point - I see an awful lot of my colleagues on salaries in that region and higher. Some have been at that level for a long time and are just relying on their super to carry them through. That's not the desired level of financial security for this family.

OK HiEquity, I give up - who is this couple you're talking about??? :p

They are very shy and private so apologies I couldn't possibly disclose that level of information... :) indeed they go so far that the lady of the house insisted on vetting every word that went into that story for accuracy and to ensure no lines were crossed. He is now used to that level of supervision!

Happy wife, happy life! ;)
 
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Interesting story HiEquity, thanks for posting it.

Something that struck me was that I've got a friend in London who's probably earning a similar amount to the gentleman in the story. He's married (three kids), and has a PPOR plus one IP which will be cashflow positive.

Anyway, my friend doesn't have a great lifestyle. Being a freelancer he got hit by interest rates on his mortgage. (He needed a self certification mortgage, which I'm guessing is roughly equivalent to a low doc deal in Oz, so it's relatively expensive.)

But I've seen a lot of conspicuous consumption in London, and so I've got a suspicion that there are a lot of people living well beyond their means, and funding things through (expensive) credit. In a sense they're taking the opposite path...

I'd agree about decent salaries helping with investments. My income has taken a big hit over the last 18 months (the UK has been hit hard by the GFC and being a freelancer I get to suffer first), and investing tends to come out of the discretionary part of your budget, whereas living costs are pretty much fixed.
 
As mentioned by others, a highly paid job is a huge asset in the beginning. But there needs to be more than that. There are 100's of thousands of workers on big money that go nowhere. What is even more valuable, is when that high paying job is coupled with a desire to redirect those funds from living frugally into something productive, such that over time, the compounding effect really starts to kick in.

Great thread HE. Amazing what can be done with a carefully thought out and systematic plan. :D

Back to Dazz's post; I played golf on Saturday at the club I last worked at, with a couple of the members.

One is about 35, recently married, no kids and both he and his wife are highly paid engineers. Just came back from a month skiing in Switzerland and Italy. Very nice.

They recently bought a property in Beaumaris for $900k - so they can pull down the house and start again with a brand new one.

Now, I can tell you that in this suburb, there will be no change out of a million for just the building by the time you take into account the demolition, architect fees, and so on.

So, let's call it $2 mill for the finished product as you need to add in gardens, curtains, furniture and so on..

The investor brain in me is thinking "now imagine what they could do if they spent $1 mill on a very nice house in another suburb, and invested the rest in some property with a decent cashflow and depreciation, or maybe some shares."
 
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