The Micheal_X story

Hi All,

Some people had asked me to do an interview with Michael_X but he posted his story before I had a chance to ask him :eek: So here's the cut and paste from his thread.


I wanted to take the time and share my investment journey. I am naturally a private person when it comes to my finances so sharing this publicly has always seemed like a big hurdle but realised this story may help others with their investment journey. Over the past 1.5 years I've purchased 9 properties taking the total to 11. This would not have been possible without the knowledge, support and friends I've made on Somersoft so sharing this story is my way of giving back to the community. I will detail the numbers, my thought process and key learnings along the way.

My property adventure started in 2004, aged 20. Playing poker one night, I listened to a high school friend rave about an investment opportunity. It was an off the plan, brand spanking new block of units in Epping, NSW. Taking his word, I walked into their show room the next day and asked for the cheapest entry unit in the complex. It was a shoe-box of a studio, 49 sqm for $340,000. Without thinking, I paid the deposit and had purchased my first investment property. Over the next 10 years, I learnt why you don't buy off the plan and make rash decisions. During this time, the strata levies increased from $500 to over $1,100 per quarter and to this day the property is still negative. I recently had this property revalued at $400,000. So when they say property values double every 7-10 years, it's definitely not all properties!

Looking back, the key learnings were:

1. Don't take advice from just anybody. Listen to those who know. The book 'Richest man in Babylon' puts this nicely. If you are investing in Jewellery don't listen to the Goat Herder
2. Do your due diligence
3. Don't buy off the plan

My second purchase took place 6 years later in 2010. Visiting a friend, he explained how his parents bought a bunch of units close to Macquarie University, furnished them out, leased them to students and now just lived off the rent. I was sold! I kept an eye out for sales in the complex and a few months later, bought one for $420,000. I followed a similar model and from day one, it's been cashflow positive and last year revalued at $605,000.

At the age of 28, I thought I was set owning two investment properties. This was until I stumbled across Somersoft and an investor by the name of Nathan Birch. Boy, was I blown away. When I first reached out to Nathan, he was sitting on 70 properties at the age of 28. I still remember watching his earlier videos on YouTube and having the light bulb moment. Buy below market, add value & pull equity. The entire concept was so foreign that I couldn't believe it could actually work.

This is where my property addiction started and over the next 18 months I spent every day educating myself, lurking Somersoft and networking with fellow investors.

My third property was through Nathan in 2013. It was a renovator's dream for $155,000 in a country town close to Coffs Harbour, 5 hours north of Sydney. I managed the renovation remotely through a local builder and the renovation was a touch over $45,000. The property was revalued at $235,000 and is currently leasing for $295 per week. When you take into account the BA fees, the holding costs, missed rent etc, it wasn't a massive equity gain but still decent for a first attempt and positive cashflow to boot. Upon reflection, I made a lot of mistakes and over capitalised on the renovation. However, it did show me that the strategy worked. Buy below market, add value and extract the equity for the next project.

One other lesson I learnt was the importance of capital growth. This deal ticked the boxes of positive cashflow and adding value but not capital growth. To date, the area hasn't seen much growth and if I had invested in more metro areas, I would have seen better growth. Hindsight is a beautiful thing. My stance now on cashflow vs capital growth is, cashflow allows you to hold onto your property but capital growth is what creates wealth.

Having gained the confidence to look for myself, I continued the search for my next deal. At first I really wanted to buy in Sydney but with a rapidly heating market I couldn't find numbers that worked. This is where I started branching out and my research settled on Newcastle. My thought process for selecting Newcastle was it hadn't taken off and with Sydney prices increasing it should have a radiating effect to other major regions like Newcastle, Wollongong and Central Coast. Newcastle won out as I managed to find the right deals.

So using the equity from my earlier purchases, I made two consecutive buys in late 2013. Both are detailed in the following thread:

The stories sound great but I didn't go into detail the headache that was involved. The first property was vandalised by kids after settlement and the sleepless nights involved isn't something I would wish on anyone. The second renovation ran into issues but more so to do with my own funds. I still remember countless days spent creating sweat equity and trying to save every dollar I could. Looking back it was worth it and great character building. The key lesson I learnt was never give up as there is always a way. Many times I felt like an idiot, questioned what I was doing but thankfully I persevered and made it work.

The two renovations finished in early 2014 and a few months later I was ready to go again. This time I had maxed my land tax threshold in NSW so decided to branch out into other states. At the time, lots of seasoned investors were suggesting Brisbane and speaking to some forumites I decided upon Logan.

So why Logan? I was told Logan was the equivalent of Mt Druitt but with Palm Trees. Mt Druitt was going gangbusters so surely Logan would be the same in a few years' time? Haha, my research was a bit more extensive but in general, I was attracted by the location, it's half way between Brisbane and Gold Coast, the yields are great and lack of growth in the past five years made it a good time to buy. Sure it had a bad stigma but this can change over time.

When I first started in Logan, I wanted to replicate my strategy of buy, reno and hold but found the numbers didn't quite work out. Renovators were costing around $240,000 yet I could buy properties with nothing to do for $270,000. Take into consideration the time & effort, risk of managing the projects remotely and lack of trade contacts made my decision easy, look for non-renovators.

One other advantage of this approach was the use of Loan Mortgage Insurance. As my properties weren't dependent on short term revaluations, I felt more comfortable using LMI so I could acquire at a faster rate in a rising market. My earlier renovation deals were made on 80% lends as my strategy was reliant on equity pulls so valuation shopping was very important. Thanks Rolf for the advice here!

Over the next 6 months I purchased 6 properties in the area using equity pulls from my earlier properties and personal savings. The purchases were generic highset houses with good rental returns. The reasons why I targeted highsets are the higher rental returns and the potential to value add underneath.

The numbers are:

IP6 Purchase Price $280,000 rent $360 per week
IP7 Purchase Price $270,000 rent $360 per week
IP8 Purchase Price $282,000 rent $420 per week
IP9 Purchase Price $305,000 rent $355 per week
IP10 Purchase Price $259,000 rent $350 per week
IP11 Purchase Price $373,000 rent ~$540 per week

IP11 is settling in two weeks' time so not 100% sure on the rent but my property manager seems confident she will be able to get this rental return.
IP11 is somewhat different as it's a lot more expensive compared to the suburb median. I generally don't buy the best house in the worst suburb but the yield and finished product was excellent so even at the high price if I could get the yield I predicted it would be worthwhile. Time will tell.

One question I constantly ask myself is whether I am buying too many properties in the same area and the increasing concentration risk but at this stage the numbers work and my team in the area is excellent so will continuing buying there. Once the numbers stop working then I will move on.
So that brings us to today. The plan moving forward is to purchase another property in the coming month and then that will be my acquisition phase done. From there it will be finding additional avenues to increase my income and in turn my serviceability. One day have a crack at property developing too, there is so much to learn!

Looking to the overall portfolio, it's currently sitting at 84% LVR with a rental return 7.3%. It holds itself with a bit of passive income but nothing to write home about. Hopefully, in time this will grow into a more significant income stream.

Following in the vein of the Somersoft interviews, I thought I will share my 'top 5 things budding investors should do'

1. Set your goals. I found this really difficult at the start, as how do you set goals in an area you don't know much about? However, over time this will become clearer, your goals will refine and once they are defined, everything will follow. To give you an idea, my goals were to replace my work income with rental income so I could have the choice to do whatever I wanted. This goal became more evident as I started purchasing in Brisbane and hence my focus on cashflow properties.
Also knowing the answer to 'why' you are doing this is extremely important. There will be times when you are tested and if you aren't clear on the 'why' then it will be very tempting to start questioning yourself and whether this is right for you.

2. Form a team. Property investing is a team sport. Don't try to do this yourself. Create a team who share your goals and have achieved what you are after already. Don't listen to the Goat Herder for advice on Jewellery!

3. Invest in yourself. I have come to the realisation that property investing is more about mindset than the deals themselves. There will be many hurdles during your investment journey, it's how you deal with these and your mindset that will set you apart.

4. Follow the numbers. I try to let the numbers dictate my decisions and leave the emotion out of it. A lot easier said than done.

5. Lastly, but most importantly take action. As the quote states 'The distance between your dreams and reality is action.' It won't be perfect the first time but doing something is better than nothing.

Finally, I would like to take this opportunity to thank two forum members in particular for their mentorship, guidance and friendship over the past 1.5 years.

Rolf - you have been so much more than just my mortgage broker. Thank you for opening my eyes to what's possible, showing me the importance of 'significance' and challenging my preconceived ideals. I definitely wouldn't have done this without your guidance.

Beanie Girl - you are the most giving person I have met. Thank you for the countless phone counsels, showing me the joy of helping others and being someone to share my journey with.

I hope this story helps others strive for their investment goals. If you have questions feel free to ask in this thread and I will do my best to answer them.