The depreciator Interview

Interview with depreciator – 23rd November 2007


I told Ruby that I wasn’t sure I would be useful interviewee, but I said I would give it a go anyway and she didn’t have to post it. So if you’re reading this, Ruby must have thought there were some bits that were okay.

I’m a pretty disinterested investor. Not sure why. I do it because I think I should, but I don’t get a huge kick out of it.
I also like to smell the roses. This will make me sound like a heretic on this site and I might get banned, but I don’t have a problem with selling properties. I’ve sold a few, and the money has enabled me to do other things.
It has enabled me to not worry about a career. I’ve changed jobs and industries often as the whim has come upon me. Along the way I’ve collected a huge array of skills and enough stories to bore people at parties for an eternity.
But to me that’s what life is all about. Not boring people, but doing interesting things that aren’t necessarily financially sensible.
NB I don’t invest in consumer goods, though. I’m a bit of a tightarse when it comes to doodads.
Not being particularly focussed on being rich also meant that I did not have a problem when my wife decided to toss in her very highly paid corporate job and go back to art school ten years ago. Her return to art enriched our lives, but certainly not our bank account.
I’ve had my indulgences, too. I did a very long PPOR reno (labour of love), and I’ve owned two old timber boats. Few things suck up time and money like a large, 80 year old timber boat. But few things have given me as much pleasure.
I also invest in my kids. I don’t mean financially, though I’m putting money away in case the local state high schools don’t get up to speed by the time they get there and we have to go private. I invest time in them. And I don’t believe in that ‘quality time’ nonsense. I believe in ‘quantity’ of time. Sometimes the quality also happens to be good, but I spend a lot of time with them and that’s time I could be making money. I’m sure it will pay off. I think I’ve laid some good ground work for future emotional blackmail and I’ll evolve that into financial blackmail when they start to become brand conscious.
Okay, here we go with the Q&A:

How did you get involved in property?

I was young and in 4th year uni. I didn’t really like the whole share house thing, so I told some fibs, got a loan, and bought a terrace house in Erskineville (Sydney’s inner west). Scary place to live back in the 80s, but it was all I could afford.
I did some renos, the house doubled in value after a few years and I flogged it. It didn’t occur to me to do anything else.
I bought a 1962 Mercedes 5 seater pillarless coupe and did it up. Went overseas for a holiday and whittled away the rest of the money.
(Loved that car. Horribly unreliable, but it was like driving a lounge room.)
The reno bug bit me. I’m pretty good with my hands and I enjoyed owning a PPOR and fiddling with it.

What is your property investment philosophy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?

I keep it simple and take the easy option i.e. I buy and then either keep, or sell when I think that property has had its CG run and may be taking a breather. Terribly unsophisticated, I know.

What is your property story so far?

After selling the Erskineville property, I got married and we rented for about four years while I tried a few different jobs.
We bought a PPOR around 1990 – again in the only place we could afford – Annandale (Sydney’s inner west). People thought we were mad buying there. Then after my ridiculously long reno, we realised that the place was too nice for us to live in – we made it look messy. And we needed more space.
So we went looking for a new PPOR in the mid 90s. We found a bizarre old place in Hurlstone Park (inner west again) that nobody else wanted. It had two self contained flats (love those flats) and a huge main house.
Somebody suggested to me that we keep the Annandale place. So we did – it was easier to keep than try and sell it. We became investors through laziness, I guess.
Then after five years at Hurlstone Park, I accidently found a place in a nearby suburb that was perfect for our eclectic lives.
I thought about keeping the Hurlstone Park property, but it would have been a real stretch, and it would have been a problematical IP, so I sold it. The church next door had always coveted the place, so they bought it for over $1m – twice what we paid for it.
Then I bought and sold a couple of blocks of regional flats and other things and made some money.
I bought and kept a holiday unit – it breaks even, but we use it a few times every year and I let friends use it when it’s not rented out. So it’s sort of a lifestyle thing. It was my first and only OTP purchase and it went well – increase in value of about 30% from exchange to settlement.
And I’ve got a PPOR in the inner west of Sydney that has shown good growth over the last 5 years (despite the woes of the Sydney market). I guess it’s worth about $1.4m. It’s another odd place – a house with 2 additional mixed use buildings. The other buildings would probably bring in $400pw rent combined if I rented them out.
So it’s a property story with a pretty disjointed narrative. I would recommend other people take a more considered approach.

Is there a story of a really good IP that you would be prepared to share with us?

Probably the Annandale property. It just ticks along. We bought it for $160K and it’s now worth $900K+. Even recently when the Sydney market had its hiccup, that pocket of Annandale was largely unaffected. Things just went sideways for a while. The agent who manages the property said to me earlier this year: ‘You’d be mad to sell that place.’ Of course, I also have an irrational emotional attachment to it because I did a 6 DIY reno on the place while we lived there.

Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?

I haven’t had any duds, but with my cavalier approach the day is coming when an investment will end in tears. I bought a block of flats at Inverell on a whim as that market was topping out and found out afterwards they were apparently on the bad side of town. I had a succession of slow paying tenants, but a very good property manager. I asked her once how she managed to get a couple of the slack ones to pay up their late rent and she said: ‘I know what pub they drink at. So I went down when I knew they had their dole cheques and told them they either pay up or I toss all their stuff out on the street.’
Deciding I could do without the headaches, and not sensing any possible growth for some years, I sold the block for a profit after 18 months of ownership.

Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)?

I dabble in direct shares, but I’m not very good at it. I lack a strategy and discipline – I think there is a pattern emerging here. I was a pretty active trader last year and would have done several million dollars worth of trades, but when the dust settled, I didn’t make much. It was fun, though. I now trade longer term and I’m in stocks with good dividends. A bit boring.
I’m thinking it may be time to bite the bullet and get someone else to trade for me i.e. a fund.
I also part own a very good small business. We pay ourselves a decent wage and the business makes a profit.

What criteria do you use when selecting a property to purchase?

I don’t have anything as sophisticated as a ‘criteria’. I punt on capital growth and the market has been kind to me. I like properties than can be improved in suburbs near ones that have boomed. It has worked so far.

What structure do you use for your investing?

Naively, I invest in my own name. But so does Jan Somers, I think?

Do you feel your experience in the industry has been a benefit to your investing

Yes, and no.
Yes, because it has enabled me to look at where investors are buying and follow them. We had a client, for example, who seemed to be buying up much of the Tasmanian north coast. So I bought a block of flats there.
Then I was invited once to do a seminar in Inverell by an accountant. The morning after the seminar I was having breakfast at a local café and a bloke who had been in the seminar asked me whether I would like to buy a block of flats he was selling. We shook on it and that was that. So in Inverell I bought coffee, toast, and a block of flats. I should have stuck with the toast and coffee, but I still made a bit on the flats.
The problem with working in this industry, though, is the fact that when I’m not at work I don’t want to think about property.

If a budding property investor asked "what are the top 5 things I should do", you would say?

- Just do something. I have a cousin in Sydney who’s been saying for 12 years he’s going to buy something.
- Play to your strengths. If you’re not good with your hands, don’t attempt a ‘renovators dream’. You’ll do it badly and probably turn yourself off investing.
- Go to seminars, but don’t sign up for anything. Seminars are good because they get you ‘in the zone’ and you’ll learn more than you would from a night in front of the telly.
- Talk to successful investors, but not too successful. By that I mean it’s easy to find people on this forum and other places who have done amazing things. Sometimes their success can seem far out of reach to most of us – especially those ‘how many houses do you own’ threads. Talk to people whose level of success seems feasible.
- Ask questions – even ones that you think are dumb.
- Reward yourself along the way i.e. don’t put the gratification off till you’re old.

And if that same budding investor asked "what 5 things should I avoid", you would say?

- Avoid over analysing. It’s always possible to find a reason to NOT do something. (But do a bit more analysis than I do.)
- Avoid putting undue financial stress on yourself. It’s just not worth it. That sort of stress can affect your health, relationships, work performance etc.
- Following on from the above, be wary of no doc loans. Some brokers may encourage you to fib about what you earn. I’ve spoken to people who did this and got in way over their heads. (There can also be other implications to overstating your income on a document.)
- Avoid companies who promise lease guarantees, rebates etc for OTP purchases. You’re funding them somehow. (I could say avoid companies who sell OTP properties all together, but as I said above I bought one and it was a good buy.)
- A bit late for some, but avoid a partner who is going to drag you down. My wife has no interest in investing, but is more than happy for me to play – there are things she part owns that she doesn’t even know she owns.

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 honestly don’t think I am in a position to be able to offer advice to people with a portfolio of properties. I have spoken to people with lots of properties and I have said: ‘Sell some properties, you dill, and live a little.’ They look at me like I’m mad and scurry away with furrowed brows. But I’ve known a couple of people who worked hard accumulating assets and died before they got to have any fun.
The idea of having 20 or so properties (and tenants and property managers) does my head in. I lack sufficient organisation. I like having fewer medium value ones.
I think people should read that post Rixter made a while ago about his plan. I note that he has finished the acquisition stage three years ahead of his ten year goal. Rixter favours townhouses around 5-10 years of age from memory and I think his plan was to accumulate 7 or so of them. I can’t comment on the strategy, but I like the fact that he started with a plan that had a defined end.

How important is planning to being a successful investor?

Pretty important, I would say. I wish I did it. I don’t think it has to be terribly complicated – Rixter’s plan was pretty straightforward. As I said, what I like most about his is that it had an end goal that wasn’t too far in the future.
But I think it’s also important have a life plan. It’s not that I’ve written anything down or anything like that, but there are things I want to do and investing will help me make them happen.
I reckon I’ve got time for at least one more complete job and industry change before I toss in this work caper. And I need to do the ‘big lap’ with the girls soon while they are young i.e. follow the grey nomads around the country for 6 months in a campervan. (I went around once on a motorbike and I did it so quickly I didn’t see anything.)
Sadly, I also feel the urge to get another boat.

Where do you feel you are heading at the moment?

I’m doing okay. I quite like working. I enjoy the interaction and I like the rhythm of the working week, but in 10 years time I’ll be over it. If I just keep muddling along the way I have been going, I’ll be fine when I retire.
I would have a very comfortable retirement if I worked (and invested) my butt off for the next 10 years. But I won’t be doing that.
I might have to do something in between.
In the spirit of muddling on, I am looking to buy soon. I’m thinking that my next purchases may be homes on the outskirts of either Sydney or Melbourne. I’m also currently looking (with someone else) at commercial premises on the CBD fringe of Sydney – we have a very good tenant ready to move in. I’ll need to think of the best way to structure that purchase.
And the house behind my PPOR just came up for sale. Decisions, decisions…

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)

Yes, I think there is a progression that many make. Getting one IP is a big step, and I think people with many of them forget how big that first step is. Getting a second property is a smaller step. Subsequent properties are smaller steps again. I surmise that the progression to developing is partly due to boredom i.e. people want to stretch themselves and take on something more interesting and complicated. Kind of like the way people start with pot and graduate to bigger (and riskier) kicks.

Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses?

Of course getting CF and CG together is great, and I’ve had it a few times. I look for potential growth, and if it’s also cf+, that’s a bonus. But if there is a choice, I’ll go for growth.
It surprises me how many people are still scouring the countryside for positively geared regional properties with the book ‘0 to 130 properties in 3.5 years’ as their bible. That horse has well and truly bolted. But yes, I know there are still people investing successfully in regional towns.
I get concerned with clients buying properties in smaller towns because they are cf+ and put $50 per week in their pocket. I quizzed a client recently and mentioned that the house they were looking at was old and not worth much. And the land it was on wouldn’t be worth much. But they were paying a premium above the value of the underlying asset because the place was renting well.
The units vs houses debate is tricky. Owning a whole block is good because there are no other owners to contend with. Owning a unit in a small block can be good. And there is a lot to be said for townhouses. I’m not keen on units in big blocks with lots of amenities.
I guess all property types (like all markets) eventually have their time in the sun. There are lots of people who made lots of money through OTP apartments. And there are lots of people who made lots of money from under valued regional property.

What do you prefer, fixed or floating interest rates and why?

My PPOR loan is fixed and my IPs have variable for flexibility. Like many people, when interest rate rises are threatened, I figure fixing may cost me an extra half a percent over variable, so I opt not to do it. The only time this perhaps doesn’t play out well is when there are multiple rate rises. Like now.

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?

The media says it’s tougher for new home owners, so maybe it is. My first homes were in places nobody wanted to live. I know there have been numerous threads about how the gens X and Y are more reluctant to compromise and less enamoured with owning a home. I can understand that, but my fear for them is that few of them are investing in other assets in lieu of homes.

I don’t think it’s all that harder for new investors. There is the CGT discount. There are lots of investor resources – like this forum. Different markets are alternately booming (and busting). Entry level properties are still around etc etc. My nephew just bought his first house and he’s 19. He bought in western Sydney – 3 beds for $208K. He availed himself of the FHOG and is living there while he does the place up. He wants to move out and buy another house next year closer in. And so on.

I guess that’s it. Went on a bit, didn’t I. Not much insight for experienced investors, I’m afraid. People ask me sometimes whether I regret selling the places I’ve sold. Not really. Like I said, taking profits along the way has given me some opportunities. My wife observed once that I had pretty much done everything over the years that blokes do when they have a mid life crisis. Maybe I’ve had a series of early life crises?

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