The MIW Interview

Interview with MIW 15th Feb 2012

How did you get involved in property?

I don’t remember exactly when and why I started buying books about finances, but I think the start was when I came across the book “Rich Dad Poor Dad” by Robert Kiyosaki. I was so intrigued by his simple explanations about what true assets were, what constituted passive investments and how relevant it was to build wealth not just from linear income, not just from your job.
After purchasing many of his books including some of his mentors I became hooked on finding out as much as I could about real estate.
These books were quite thought provoking but didn’t really illustrate how to do it, how to start until I read another book, “Seven Steps to Wealth” by John Fitzgerald. It’s only a short book so I read it from start till end, finishing around 4:00am.
My husband and I have always been open to information so we attended one of his seminars and the rest was history.
We didn’t know much about property nor did we have any family or friends that could show us the way but we were fortunate enough that companies like that existed and pointed the way.

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

Initially we didn’t have a strategy since we were inexperienced, lacked the knowledge or the skills and were time poor running our self-employed business, however we were hungry to commence our wealth building so we decided to go with someone else’s system to build wealth. I believe you have leaders and followers in all walks of life so I suppose we were the followers and became passive investors at first.
Basically the strategy was for Capital Growth (CG), never to sell, house and land from new developments, not necessarily in proximity to where you live but not in regional areas, close to local infrastructure, schools, jobs, recreation facilities, with below 3% vacancy rates, for affordable housing where 30% of States weekly male earnings would suffice for the rent, preferably in an area with not much crime, with 20% deposit and having all stand alone loans (no cross collateralisation).
Today, most active investors disagree with following 2 tier property company’s approach but to us the most important thing was to start and to give it a go. We were such novices so perhaps at first we didn’t understand that a premium was paid for new estates but at least we thought that higher depreciation/rents and less maintenance for the long term was the way to go.
In addition the plan was to acquire a property whenever we could, when we generated 25% savings (20% deposit and 5% costs) and regardless of what the market conditions were. At that stage we didn’t understand the equity concept and eventually when we did, we did not feel comfortable with this approach (thinking about it now I realise what cautious and adverse risk investors we were).
Today, after gaining more knowledge, having slightly modified our approach we are adopting the strategy that reflects our circumstances. Since we were never huge income earners and derived irregular income from being self-employed, we realised that this strategy works best for us.
We plan to invest for a very long time with the intention to never sell, so mainly for CG and against herd mentality trend. We spread our portfolio around various suburbs and states to take the advantage of property cycles that occur (this meant we hold properties in NSW, QLD, VIC and WA). Adopting the long term approach, we stay away from regional areas or areas that may be reliant on only one income source (e.g. tourism, mining towns).
Our preference now is for an established house and land, with similar above parameters, with potential to renovate to add value, as we like total control (we don’t dismiss units, or townhouses or duplexes however we would need to secure at least 50% ownership to make it attractive for us or to buy via SMSF).
Taking more passive approach, we don’t develop, flip or wrap, however we are always interested in purchasing a property next door to the property we may own (for future redevelopment or sale potential).
We always purchase with Interest Only (IO) stand alone loans (no cross collateralisation) and 80% LVR.

What is your IP / property story so far?

Escaping a communist country, living in Austria for over a year and eventually emigrating with my family to VIC Australia at the end 1979, I never imagined how challenging, rewarding and full of experiences my life would turn out to be (Could a socialist be transformed into a capitalist?) In 1980 we had moved and settled in Sydney South West.
While studying at university and in my second year I met my partner for life. After getting married and finishing UNI we moved and lived with my parents to save a deposit for our house (like all good migrant kids would do, live with their parents, right?).
So in 1989 after some bottlenecks and purchasing in neighboring suburb to my parents, about 5 minutes drive away, we purchased our first PPOR (like all good migrates kids would do, buy close to their family, right?).
You see when I was in my mid twenties I remember reading one of Jan Somers books and my husband and I passed the opportunity as we didn’t invest. We became easily influenced by other articles of how Australia will have a low inflationary environment convincing us that property values will not double now every 7 to 10 years. At that stage we didn’t know anyone who had invested into property instead we had been warned off by our family, friends and even our accountant of how dangerous it could be. So after a property cycle, seeing how our PPOR doubled in value and coming across RK and JF books, we knew we had to become serious. We thought that everyone would be doing it too (how wrong we were there!)!
The main point we realised is that property could act as a business and generate income too. You see we always looked for other opportunities of how to get ahead, how to create wealth and how to generate more income. We became so determined to give it a go that we abandoned our plans to build our dream house in Kenthurst NSW, so we sold the land and provided the money as deposit for our IPs.
Boy, were we naïve! We really didn’t understand the concept of equity, duplication, drawing maximum loan amounts, structure and taking IO loans. All we knew we wanted to be serious! We thought we’ll start small so in 2000 we placed around 50% deposit each enabling us to purchase three QLD properties nos. 1, 2, and 3.
We were petrified! We assumed we had to pay the properties off as we never forgot how hard it was to pay our PPOR off (in 5 years even at 16.5%). Looking back in hindsight, and providing 20% deposit on each, would have enabled us to perhaps purchase six properties instead of three.
After two years we realised the properties’ holding costs were minimal and having saved up another 25% we decided to purchase QLD property no. 4 (again, looking back in hindsight if we used the equity too we could have purchased two or three more).
The QLD property cycle was quite dormant until 2003 when growth followed. After attending seminars, becoming more educated and knowledgeable about property cycles we decided to duplicate. The next property was a cash purchase through our SMSF in WA so property no.5.
In 2004 QLD properties boomed and people were advising us against purchasing there. Since our strategy was for the long term and we had saved up another 25% we proceeded and bought QLD property no. 6.
I suppose at that stage we learned enough about the system and the program we followed so we directed our energy to further educating ourselves. I read books on various strategies, about structures, tax implications, estate planning, and stocks.
In 2006 after saving another 25% we purchased QLD property no. 7. At the same time after establishing a good relationship with the QLD managing agent we purchased an established, one year old property, through the auction process so QLD property no. 8.
I will be quite frank with you since during all this time we still were passive investors who didn’t dedicate much effort and time to property. I think we can be compared to the “hare”, in the tortoise and the hare racing story. The hare jumps up and down, here and there and everywhere, he rests and then he’s all over the place, but the tortoise just moves slowly along and concentrates on one thing only and crosses the finish line first. So we were the hare, we explored different business ventures, tried to make a living from investing and trading stocks, invested through IPOs, and even tried our hand at import/export business.
I truly believe that a greater force is looking after us as in early 2007 we sold one stock from the initial IPO at a substantial profit (we purchased and sold the stock under 4 entities; jointly, in a trust, in a company and most in our SMSF). The primary reason for the sale was to move closer to city to send our kids to better private schools.
So in 2007 when opportunity aroused we purchased in VIC property no. 9 and that followed with established, about a year old house in QLD property no. 10. Then through our SMSF and with the aid of our QLD managing agent we purchased two more properties in QLD property no. 11 and no. 12.

Suddenly we had many choices in our lives!

The first choice:
From the proceeds of the stock sale we considered the following possible scenarios:
1. To pay off the entire property portfolio
2. To relocate to better schools and to buy our dream house
3. To duplicate and to purchase more properties and to live and stay where we were.
For us the choice was easy, since the top priority was the school and so in 2008 after a year long search, we had purchased at auction on lower North Shore NSW our dream house.
So in 2008, we had owned 14 properties in total at this stage in our lives.
In 2010 we decided to sell our first PPOR as it didn’t suit our criteria for an IP (large swimming pool/spa, lots of air-conditionings, recently renovated, superior for the area) and direct the proceeds to other investments.

The second choice:
Suddenly, we realised if we stopped duplication, that our property portfolio would sustain itself.

The third choice:
At current stage in our life we plan to concentrate investing through our SMSF. We plan to borrow about 50% to purchase at least 4 more properties. The idea would be to structure SMSF portfolio so that in 8 years time, even without any further contributions these properties would be paid off in full. At that stage my husband will be 60 and would have access to use the money in the fund.
Perhaps just to give a further insight the 50% loan would represent only 25% total debts in the SMSF.

The fourth choice:
There comes a point in your life when you suddenly feel better balanced and so you appreciate and wish to give back to people or organizations that you support. For us this meant we could concentrate some of our time to do the things we always wanted to do.

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

There are two stories that stick in my mind.
The 3rd IP purchased is on a block of over 1000m sq, with reasonable frontage, about 900m to a railway, surrounded by park to one side, about 12 kms north of QLD CBD, without any land available to further develop the suburb. In possible future, permitting re-zoning, 3 townhouses could be developed on this site (The plan is that if we don’t do it perhaps the kids may….).
There is a saying that a good deal comes around once a week if you are patient enough to wait for it. Perhaps the story applies to our current PPOR but I cannot see why it couldn’t apply to an IP too.
We had been searching for about a year for property around north shore NSW and what would you say if I told you that it was a fluke that we bought our current house?
While at an open house about two suburbs away we were asked by the agent if we would like to look at another open house. Since we had time for the next viewing we decided to have a look. The suburb’s median was beyond our budget and this property was for sale by original owners for the first time in 60 years.
We loved the building, the location, the view, the pool, the street appeal, the amenities and it ticked off all our boxes except the asking price was above this median suburb’s price.
After being unsuccessful at previous auction bids, removing our emotions BUT taking our checkbook (just in case) we decided to attend the auction to further learn the process. To our surprise the agent asked me to start the bid with a suggested figure in mind yet I opened the offer much below that price. The vendor bid followed and the sale didn’t arise so they took us for the negotiation outside. And guess what? To our surprise the offer was accepted and we ended up buying this house.
You see the morale of the story is to be open-minded, never to dismiss anything, to search and follow through and a deal will be found. The agent quoted the asking price about 10% above the median and yet the house sold below 25% its median price for the suburb.

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

Personally, I did not have a really bad experience with any properties rather with an agent that was to manage my VIC property. The house was being built and to be completed and available for lease in early December just before Christmas. After about two weeks after my enquiry I was told the property could not be leased as it was competing against other properties in the area.
I was furious and thinking to myself how a brand new property could not be leased? It took me a day to come up with the strategy so I rang the agent and I told her to advertise with first two weeks rent free if the tenant moves in before Christmas. To her and my surprise a tenant was found the next day. Since then I had one tenant move out and the property has always been leased.
So the lesson learned was focus on finding the solution rather than focusing on the problem at hand, and that sometimes we need to manage our ‘managing agent’.

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

The older and hopefully wiser I grow, the more I realise there’s some meaning when people say most successful people are those that do one thing they are good at and they do it well.
As mentioned, we are the ‘hares’ so we try many things. At first we lacked the understanding so we thought the only way to increase our income was to try and to open more businesses….. We have no regrets as the mistakes we have made taught us vast lessons along the way. Many people tend to become very negative and frightened after bad experiences however we realised these were the lessons we had to learn.
We owned one managed fund in the past in early stages while we both had been employees and adopted the concept for long term investing (as advised by most financial advisors, right? I do not mean to be disrespectful to financial advisors I just came to realise now I prefer total control).
Also, while working in the IT one of my past projects was to program all those fees!
At that time share trading courses gained popularity and thanks to our open-minded approach we had to give it a go. We were promised with minimal effort and having 10 minutes a day we could manage our portfolio and trade shares. Soon we engulfed all education on shares even spotting trends through Japanese candlesticks (Gee, did we want to do it all!).
Please understand that from each experience we have learned! With managed funds, the asset allocations and the sell concept. Through share trading how to protect the capital, spot trends and set stop losses just to name a few. I believe that knowledge was vital in our progression.
We had tried our hand at various businesses too. Somehow we found ourselves running a small goods production and opening Delicatessen shops, after my dad’s health scare. We thought we should keep the family business, that’s what all good migrants kids would do, right? Managing people, cash flow, administration, OH&S, rents, competitors, etc…, basically the challenges and pressures of running small business communicated to us to find a simpler, better and easier approach. So we sold the business at a profit and guess what we did?
We opened an import/export business instead. If you don’t learn then try again! We always thought we needed a different source of income just in case…… Eventually we sold that too.
Throughout this time while being told that property investing is a business, we really didn’t believe, I think, that it really was! It wasn’t that challenging if you follow someone’s approach. It was quite simple and boring instead. In hindsight imagine if we concentrated all our effort just on that. Well, perhaps that’s just another lesson that had to be learned.
Other investments now include land developments IPO’s. We are not the experts so why not try and invest with specialists in this field.
On my husband’s side he likes some exposure to the mining and resources sector so we hold a private IPO in thermal coal producer that may this year perhaps float. In addition some minor shares in mining stocks and we hold physical commodities, such as silver and gold, to hedge against currency fall.
Last but not least cash in the bank is held for short term.

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

At first, I just wish to point out that investors should realise that gaining knowledge and experience in any property renovation is the key….
At present in our economic conditions the criteria is for more affordable areas (know your market), house on land, close enough to infrastructure (a motorway, bus or train), and good local schools in the area, proximity to work, with possible recreational facilities and access to shopping centers.
Through our SMSF I’m also looking for apartments closer to CBD in smaller established complexes. The strategy is to renovate, utilize existing contractors, to add value or at least to slightly increase the rent, so more for income/yield, to be able to repay the units in 8 years and to minimize land tax.
You see with SMSF you have to adopt the strategy that suits you and your circumstances. SMSF properties’ equity cannot be leveraged further so timeframe while in the accumulation phase or closer to your defined phase should dictate the strategy that you use.

What structure do you use for your investing?

At first we purchased the IPs in joint accounts and since most were in QLD, land tax wasn’t an issue as QLD state provided the largest thresholds. Since then we purchased in a trust and directly through our SMSF.
We treat property investing as a business now so we use various structures for diversification to take advantages of various property cycles that occur, for asset protection and estate planning, and to minimize and spread our land tax and ATO bill.
Through SMSF (trust and warrants structure if you borrow funds), while still in the accumulation phase, and paying for properties in cash, the CG approach was used. Now our strategy changed since we could potentially access our SMSF investments in about 8 years time. So looking ahead and currently generating 6 figures in our SMSF enables us to comfortably purchase about four more properties with 50% loans or another two for cash (that’s without any extra contributions too). So the aim for us is to fully concentrate on our SMSF.
We realise that not many people are or can be in the position we’re in but taking control of your SMSF can be noteworthy and worthwhile strategy to build wealth too.

What is your strategy to fund your lifestyle in the future (eg Live off Rent, Live off Equity, Live off something else….)?

The strategy is to have multiple sources of income thus choice! The main influence for that agenda is that I read that wealth is transferred but not lost! So I hope to hedge against inflation, stagnation, deflation, and hyper-inflation, against government, banks and Wall Street rules. Will I succeed? Well I don’t know but I will try so hard through real diversification!
When I mean diversification I do not mean just managed funds, or cash or equities or properties. I have diversified into private land development and resources IPOs, to holding physical commodities such as silver and gold and invested into companies that may offer innovative solutions for energy for long term growth. In addition I plan to make some investments in the country I was born.
With regard to properties the aim is to grow a large, self-sustainable property portfolio, so a combination of living of rent and equity can be sustained. I do not wish to sell any properties, unless perhaps I reach the retirement criteria in SMSF. An independent advice how to use SMSF investments wisely will be sought by me then.
One thing I realised though is that learning constantly about finances is the key! The more I have spent on finances the better end result for our family had been. So how much time are you willing to spend on your finances, on your well being, on your future? One person just summarized it is one statement, “What are you doing everyday to make your life better?”

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

1. Start now and overcome your fear (Do not procrastinate)!
I have wondered what has made the difference in our situation and I realised that it was taking that very first step! Even when we didn’t fully understand it, have the knowledge or experience, we decided to trust someone and to give it a go.
Even today, so many people will investigate and listen to others and they will never start. Some will experience “paralysis by too much analysis” and others will lack the knowledge to start. Unknowingly, I think it’s in people’s nature to intent to scare others, to warn, to worry and to advice even without having any experience themselves. I always listen to advice but when I follow through with questions, and discover inexperienced investor telling other people stories then I will not be influenced at all. It’s like one of my dear friends who gave me advice on how to raise children but didn’t have a child of their own. We may all listen but would you really follow that advice?
So start now, the time and the market may never be right, nobody will have a perfect system, or make the best deals all the time.

2. Establish end-mindset (Your goal)!
We were so lucky that someone in the early stages explained to us how to set, qualify and quantify goals. When asked what do we wish to achieve, most of us would say that we want to be rich, or to provide for the kids, or to have enough in retirement, or to substitute our income so we would no longer have to work, or to leave an inheritance to our kids, or to have a number of properties in a number of years and so on. But what does it all mean, what is the expectation?
I am amazed by the vast number of people starting out, wishing to have ‘X’ number of properties but not understanding the end result. To me it’s about the net dollar value of my assets, having multiple sources of income, having choice, as opposed to how many properties I should have. I treat property investing as a tool for wealth building that’s all.
In our case, about 12 years ago, the expectation was to build a net property portfolio worth around $2 million that would generate $50K each ($100k total). From that we would plan on an investment strategy and on how many properties we would need. We then modified our expectations once we achieved our goals.
So like building a house you need the blueprint first. So take some time off and plan out your future and have an end figure in mind. For novices, attend courses or seminars, decide who your mentors are and follow their lead. Read and learn constantly to minimize your risk and if you wish to be a passive investor than model on someone very successful and/or seek their help. Having the plan will help you to stay focused and to eliminate doubt.

3. Follow a system (Your investment strategy plan)!
How do you measure your financial success? Is it by the cash flow and/or the capital growth you make, the number of properties you own, the LVR you reached, a combination of some? I measure it in terms of my net worth and goals that I met.
There are many ways to invest into property but successful investors treat property investing as a true business. They take calculated risks, develop or lead a system, become decisive and they act. Nobody can do it all, so work out on a strategy you wish to adopt and then act. Decide if you are the speculator, chasing the latest deal or the investor with a strategy for the long term.
So decide on the strategy/technique/system and put down a plan. Forgive the mistakes, refine, provide solutions but continue also to learn.

4. Repeat the system!
Be disciplined and repeat the system. If the strategy works for you then repeat it over and over again! Do not become distracted (do not park and stop buying), accumulate when you can afford, manage your cash-flow, do not over commit, have contingencies or emergency plans (LOC or offset accounts or lower LVRs, etc…).
I think we did it the hard way and a slow way as our strategy was to always save up 25% (20% for a deposit and 5% for costs). Perhaps it was the lack of understanding, or perhaps coming from a communist country and distrusting the banks, we could never bring ourselves to duplicate when equity grew. However, having the discipline not to park and continually buying whenever we could, produced our results.
Think about it, most successful people from all walks of life have perhaps one thing in common, the discipline. So work on your discipline and make sure it becomes a habit and then you too will succeed. What’s stopping you from duplicating now? Find ways to increase your cash flow by being more humble, not keeping up with the joneses, perhaps refinancing or locking in your rates.

5. Positive environment and knowledge!
Surround yourself with like minded people, people that know more than you and the people that you can trust. Join master mind groups who act with integrity who concentrate on the big picture rather than small obstacles that you will face. To stay current you must to continue to learn.
Decide who your mentors are, continue to read and learn, attend seminars, subscribe to forums like these and question everything. Be prepared to invest into your education.
To me property investing seems simple but it’s quite challenging too! Overcome your hesitations, fears and decide to commence now. Start with the end figure/result in mind. Develop or follow a system for your success and permit time and market forces to do their thing. Have the discipline to repeat the process over and over and over again. Surround yourself with like minded people and constantly learn and learn and learn!

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

1. Procrastination and negative advice!
Just understand there is never the perfect time or the perfect investment or the perfect way. Conquer your fear, work on your strategy or learn and model on those who have been successful. Don’t concentrate on negative advice but instead spend time to learn to set up a proper business so you can eliminate doubt and stay focused to build wealth.
Be open-minded, swallow your ego and surround yourself with mentors you trust!

2. Generalisation!
If property investing is your passion then find your niche! Specialize in what works for you and do not deviate. We had been the hares, however unknowingly to us; if we had specialized and used equity in our portfolio we could probably have doubled that.
The more control you have in your life the more satisfied you become. So learn to specialize in your niche rather than to generalize. Successful people take on full responsibility and find opportunities while others see problems. So embrace change and seek opportunities ahead!

3. Do not stop accumulating!
Whenever possible keep buying and adding to your portfolio. Do not let the obstacles or distractions sway you of your path.
If you have to work on your income, savings, houses and your giving then find a way! Realise that property investing is not a quick, get rich scheme. Let the market forces do its thing! Whenever you can afford to add a property then do it. Do not stop and have the discipline to keep going. Adjust plans if you must but continue and in the long term you’ll succeed.

4. Doing everything yourself!
Many people can be very opinionated thinking the best way forward is to do it all by themselves. Successful people have built great relationships and networks around them. Property investing involves people too. Depending upon your strategy you still need experts in property law, conveyance, development, management, and so on. No one is an expert in all these fields.
So adopt a strategy, specialize in your niche by all means, but always be open-minded and seek help, motivation, inspiration and knowledge from trustworthy members of your team.

5. Anything illegal and morally unjust!
I always say to my kids that whatever they chose to do in life they better make sure it’s legal and morally just, basically to be good and honest human beings. In addition their schools motto is to be, “A man for others”.
Many people can become financially successful in a dishonest way too. So whatever investing approach you take, do it with integrity and treat others as you would like to be treated yourself!

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?

Apparently, less than 1% of investors in Australia own 6 properties or more, and about 95% won’t continue to duplicate. Recently at a seminar I had spoken to an investor who started but deviated from his plan and thus did not continue to duplicate. His reason was that his wife and family wanted a larger and more expensive house. He also pointed out how much extra un-deductable debt encumbered his financial situation and caused him and his family extra stress.
There was a stage in my life in similar circumstances so I realised I had to change and concentrate in finding the solution. I pointed to him that he’s lucky as he had a choice! He could sell some investment properties; he should concentrate on the solution to solve the problem and to move ahead. I proposed selling the house, confronting the fear, swallowing the ego, opening to family (to me home is the people in the family not the physical house). Once he could reduce or eliminate the bad debt than he can reset his goals, plan their big picture, perhaps seek advice and start again.
You see nobody is perfect and knows it all so having the big picture and following the system may have helped him to stay on course. Perhaps attending seminars for guidance, motivation or inspiration could have redirected his path.
So the lesson is to stay focused on your main goal. Be humble, live below your means, practice delayed gratification and be disciplined. Engage your partner to be on the same path and follow above “what are the top 5 things I should do”.
AND if you do not have the answers yourself than seek out the secrets of the very successful people and learn from them.

How important is planning to being a successful investor?

Extremely! I would say planning is crucial! Imagine you start to build a house without creating a blueprint first. The same applies to being a property investor. However in my opinion not starting is worse.
Once you start and have a plan then discipline of repetition is the key. You can work on motivation but you must be disciplined to put it into action your plan and to carry it through.
You see today we live in very fast paced, full of obstacles and challenges world, where conformity and consumerism distract our lives. Plans permit you to stay focused and to disengage from those stumbling blocks!

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, joint ventures, commercials)

I am not sure what is meant by ‘natural’ progression, I believe we all have 24 hours in a day, we all have opportunities and choices from the moment we are born, whether we take them or not. My goal and priority was to achieve certain net worth, but others may like to take a very active approach. So the “choice” to do it would be in my view the natural progression.
As with anything in life, I have found that the more knowledge and information we have the more comfortable we become, and the more comfortable we become then more stable decisions we make.
One of the quotes I heard was that “Success is a journey not a destination”, so if you become passionate about the choice you make, whether to own many properties, to develop, to form ventures or to invest into commercial/industrial properties, and so on and on, then you will succeed as you will find a way.
Our passion was to build wealth, to provide multiple sources of income and to have choices!

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

Perhaps by following a certain program I have been influenced and have been biased towards the system I used. So the strategy was for CG in major cities, certainly not in regional areas, to purchase mainly new house and land. Eventually, I purchased established but still fairly new houses. Now I like to add value through minor or cosmetic renovations too.
Since adopting a very long time strategy, CG is more important to me. Being longer in the market, or adding value, basically by generating extra equity by any means, the cash flow position improves over time too. Eventually, when I started most of the investments were negatively geared, but if you bought well, and once you stop accumulating, eventually the investments become neutral or positively geared. The question is whether you have a long term view strategy in mind.
For the long term strategy I take the view that regional areas would be more susceptible to risk since they could be dependant upon one industry or a single income source. I choose not be exposed to such risks so my choice is for major cities instead.
Many investors have been successful whether investing in units or houses. As long as they stick to their parameters and what works for them that’s fine by me. I like total control so the houses way suits me. If I wished to buy a unit, I would follow the strategy outlined by Michael Yardney in his book. My preference would be for 2 or 3 bedrooms, in well located areas, with potential to add value, with larger floor area, with parking or proximity to infrastructure, in smaller complex (no pools, gyms, lifts, etc…). In addition I would pay for strata report and I would ask other relevant questions too. What is the % of owners to renters? What would the rent be and is it comparable to other rents received in this complex? So like with any investment knowing what you want is the key!
I would stay away from the studios or serviced apartments or very large buildings. The issue to me is with competiveness and demand there in good and bad times too.

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

I had always stuck to variable rates since our LVR was not as exposed.
I also read somewhere that 90% of the times the banks get it right, so how could I compete and outsmart them. In addition, the variable rates provided the choice to duplicate (or how I wish we used the equity then….).
I had also prepaid and thus fixed interest in advance to minimize the tax on some loans. However, that strategy only worked for that given year and then you either prepay again or not.
So it all depends on your individual circumstances and where in your wealth building journey you are. Perhaps if I was heavily exposed I would have fixed part of my loans.
In the long term the most important point would be to manage your cash flow instead! Being in business you realise how vital to your survival it is!

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? Your thoughts on the next 1 year, 5 years, 10 years?

At one seminar someone posed a question, “Who controls property affordability?” and the answer was, “The Banks!” With credit squeeze crunch the uncertainty remains.
I think this year 2012 will be an interesting year, with perhaps a lot of confusion and disarray. I presume the consumer confidence to become slightly optimistic towards the end. In my view that’s an important indicator for the reversal of the trend. Sydney housing markets, characterized by a chronic shortage supply would be expected to continue to perform solidly as in 2011.
However in the next five years I see Australia as having a great window of opportunity to grow through property in wealth. There are number of reasons for my optimism.
Firstly, as reported by ABS, we are experiencing an increase in population growth, of about $1 million people about every 26-30 months, and we are undersupplying dwellings to meet that growth.
Secondly, we have currently one of the highest interests in the world. Other outside, very big and very competitive banks are eyeing Australia to establish their business on our shores. While attending a seminar I heard that a Chinese Bank ICBG may be planning to open here around 70 branches. Now imagine a bank with around 280 million customers, which would be bigger than currently all our banks, competing for our business. OR, imagine why a Japanese bank that currently may earn around 1.5% wouldn’t like to come to Australia and earn around 3% to 5%? Now, for property investors these would be interesting times….
Thirdly, the mining industry and its direct exposure to the resources’ boom means property markets in Perth, Brisbane and Darwin would be expected to lead the country’s house price growth in 2012.
The figures/statistics empirical data suggests that Australia in 10 years time could be on a path to phenomenal growth……..these are my guesses only, so let’s live and wait and see.
Property investing is never constant OR uniform in its positive or negative gains but for the last 100 years it enabled many Australians to build wealth. So let’s keep up with the journey and good luck to you all!
I would like to end with two of my favourite quotes:
Riches are not an end of life, but an instrument of life’ by Henry Ward Beecher
‘You cannot strengthen the weak by weakening the strong,
You cannot help the small…by tearing down the big,
You cannot help the poor by destroying the rich,
You cannot lift the wage earner by pulling down the wage payer,
You cannot keep out of trouble by spending more than your income,
You cannot further the brotherhood of man by inciting class hatreds,
You cannot build character and courage
By taking away initiative and independence,
You cannot help people permanently by doing for them
What they could, and should, do for themselves.’