Interview with monalisa and MsAli July 2012 1. How did you get involved in property? We are twins, and it is great to be a team of two to bounce of ideas, and contribute our strengths. We moved to Australia in 2000, when we were in year 9. The move was challenging, which included cultural shock, coming from a background where we were privileged to have gone to a private school prior to moving, and here we were now attending perhaps one of the worst schools in Sydney. In our early days, we met people of similar background who moved to Australia in the early 90s and they seemed to be well settled here in Sydney. The challenges of being in a new country meant all we had was an education and visions to get us through to where we wanted to be. So it was heads down and tails up for the next three years, until we finished HSC – it was quiet a journey. Whilst grades are not everything, we had to make sure we made the move to Australia worthwhile by achieving a set UAI /ATAR. This was a be-all and end-all – we had a limiting belief that our entire lives were dependent on this mark. We scored well (mid 90s) so it made the move to Australia worthwhile for our parents. We went against the odds of undertaking the medical/engineering/law education, which is untypical of someone of our background. We chose IT (MsAli) and Commerce (monalisa). We had a lot of confusion as to what we wanted to get out of career and life – and after many changes to preferences we decided on these paths. Little did we know that these choices will fit into the bigger picture (i.e. where we are today). In the process of finding our identities, we started focusing on our self-development of changing our subconscious minds – this was in contrast to the analytical and logical thinking we were brought up with. However this is for another time. Subsequent to finishing university, we found the jobs that were perfect for us, and we started saving up without a purpose, with no sense of money. We splurged part of the money as we went along, including a brand new financed car (which ended up impacting our borrowing capacity, forcing us to pay it down within a year and a half of the purchase). When we had moved to Australia initially, we saw family friends purchasing their homes – and we thought it would be awesome to buy lots of properties – although it all looked too difficult! But it was only two years into full time work that we realised that it was all possible. The challenges of settling in a new country earlier on had highlighted to us the importance of financial independence. This further became clear as we found ourselves forever “striving” for career progression, and working for other people’s approval, as well as relying on them to give us pay rises. Whilst our current careers continue to support us in working toward our financial independence goals, we think it is vital to focus on passive income to replace our active income. It took a sudden mindset change (see question 3) to realise we were in charge of our destiny. It was quite a shift from the victim mindset where we believed, “others would be successful and we’d be watching.” However the shift and the realisation meant, “how about, WE take action to BECOME those people that are successful rather than being in awe of those taking action”. Now our mantra is….Take action NOW. We found the Somersoft property forums in early in our journey, and it is probably the best thing which happened to us. We are incredibly grateful for what we have learnt from everyone here and continue learning. We would like to think we have attracted in our life successful investors, who set the bar high. It has given us a glimpse of financial freedom. Being a tax accountant (monalisa), we are aware of some highly successful Australians, who started at the bottom, and have made a life for themselves, so we continue to be inspired by a lot of people. 2. What is your property investment philosophy/strategy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc.)? - Buy and hold; - Potential for value add; - Below market value to comparatives; - A gross rental yield of 7% plus; - Potential for capital growth; - We prefer strata complexes (all purchases have been in strata complexes due to low maintenance factor and low entry price); - Close to amenities (transport, schools, shops, hospital); - We prefer properties built within the last 20 years at any point in time, for us to be able to utilise the depreciation expense (this has had the impact of our properties being neutral to positive after tax at current interest rates). 3. What is your IP / property story so far? On 6th August 2009, we were celebrating our brother’s 19th birthday, who said “Come on, why don’t you both buy a house. If I were you I would have done that already.” It clicked in that spur of a moment, and we said – yes why not, and the search commenced. The market was crazy at the time due to the First Home Owner Grants. Though till now even though some of our young colleagues were starting to purchase their first properties it hadn’t YET crossed our minds to even consider a purchase. The search commenced and we found our first place in November 2009, and this became our PPOR. It was a steep learning curve, and we felt overwhelmed with the amount of information coming our way. Our second place was purchased in July 2010, which was subsequently tidied up prior to being put on rent. This place was then revalued to extract equity. We then renovated our PPOR, which included paint, some tiling, and new carpet. This was also revalued to extract equity. Third place was purchased in December 2011, and fourth in May 2012. Third place had some minor works done prior to renting, and once the market starts moving, the intention is to get the place revalued to extract equity. Same with the fourth purchase. We intend to buy again in the next 18 months. 4. Is there a story of a really good IP that you would be prepared to share with us? All have been good so far, but we will share the last two purchases. (a) A two bedroom unit, with a lockup garage, in Western Sydney (1997 built). Looked at the property 3 weeks before Christmas 2011. The agent advised that the property had to be sold before Christmas, and there was $600 remaining from insurance monies to be given the prospective buyer. The property was originally listed for $235K; the owner had rejected offers of $215K (the property was in a bad condition, with drawings on walls). The tenants did a runner, and the owner got the insurance monies to paint and replace the carpet. Subsequently, he got an offer of $210K, which he rejected, given now the place was in a much better condition. The price was reduced, to $205K - $220K. We made an offer of $205K. The owner took about a week to warm up to it. It turned out the agent had miscalculated the insurance monies, but had to issue a cheque for $600 as promised. We used those funds to do some more tidy up, and used only $1,200 from pocket. This place is renting for $310 at the moment. (b) A modern three bedroom villa, with a lock up garage, in Western Sydney (early 90s built). Our property manager knew we were looking for a place. He called us when he advertised the place initially, but MsAli advised him she is not willing to pay what the owner was expecting. The place was initially advertised for $259K. Also at the time, we thought of getting on the granny flat bandwagon – so we spent a lot time looking at houses in Western Sydney. One day we decided to have a look at this place. The price had also been reduced to $245K. We offered $225K to $227K. Having been to so many properties, we thought there was value, and the owner agreed at $230K (he had previously rejected a similar offer). We chose to do some $1,200 work, and the property is now rented for $340 per week. Tenants moved in 24 hours after settlement. Looking at recent sales, a 2 bedroom unit recently sold for higher than the three bed villa. 5. Is there a story of a really bad (or not so good) IP that you would be prepared to share with us? No bad stories. We learnt a few good lessons early on. We initially signed up to purchase two OTP properties in September 2009, but the banks valued both places below the purchase price. Our intuition was not right, so we pulled out within the cooling off. We lost about $2K. The lesson was worth the loss. 6. Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)? Not at this stage, but business is on the agenda. 7. What criteria do you use when selecting a property to purchase and/or renovate? Refer to question two. 8. What structure do you use for your investing? Buying in own name. We will look into trusts soon. 9. What is your strategy to fund your lifestyle in the future (e.g. Live off Rent, Live off Equity, Live off something else….)? Live off rent. 10. If a budding property investor asked "what are the top 5 things I should do", you would say? - Trust your own instincts; - Do your own due diligence, regardless of what others say – they cannot make a decision for you, or put themselves in your shoes. You have to suit yourself. - Only use licensed and experienced professionals. If you want a good service, you will have to pay for it. Build a team of reliable professionals (broker, solicitor, accountant, tradies etc); - Invest in self-development, because alignment of the mindset with the abundance the universe has to offer cannot be supplemented with business analytical/logical thinking alone. Focus on shifting the “road blocks” you may be experiencing, and work on how you can overcome the limiting beliefs to move toward your financial freedom. Thing big, vision, dream. There are endless possibilities. - Educate yourself. Talk to other investors (Somersoft is a great resource). Read books. 11. And if that same budding investor asked "what things should I avoid", you would say? - Do not buy brand new / off the plan, as you pay a premium. Sure buy if you are getting a bargain; - Always get a tax invoice; - Do not believe everything others say, check with your own intuition if something sits well. If something is making you feel anxious, chances are it may not be right for you; - Do not make financial decisions until you have educated yourself; - Do not follow the herd. Just because every second person is building a granny flat, does not mean you have to do it. You have to question whether it adds value to your portfolio. - Do not be arrogant, and listen to people who have been there, done that (even though the decision has to be yours, as mentioned above, no one can make a decision for you). 12. 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? Revisit your goals. Look at the current portfolio, and question whether it still aligns with your goals and life circumstances. 13. How important is planning to being a successful investor? Very important. You must know what sort of property you are getting yourself into i.e. how much it would cost you on a weekly, monthly and yearly basis; consider how long it may take to become positive (at current rates, and also considering what will happen if the rates increase); plan for buffers. Have a saving plan, as to how many months/years you intend to save up before the next purchase. 14. Do you consider that there is any natural progression for an investor? (e.g. From owning a few properties, to owning many, to being a developer, joint ventures, commercials) Yes, but it depends on the personality and risk profile. We would like to move on to bigger renovations. 15. Do you have any thoughts on the CF vs. CG debate or on the issue of metro vs. regional, units vs. houses? We like a mix of both! Since we are in our initial stages of property investing, we prefer metro properties (in Sydney) over regional, as we wish to build equity quicker. We prefer units (villa/townhouses/units) due to low maintenance and low entry price, and better yields as a result. 16. What do you prefer, fixed or floating interest rates and why? Floating! We have made the mistake of fixing rates on our first two places, when the market looked buoyant. 17. How important in your life is having a partner and other family members who are “into property”? Incredibly important. We are passionate about property. It is a lifestyle choice. It is important to have an abundance mindset, and the drive to go beyond the societal limitations. 18. Do you think the current environment is making it harder for newer investors than when you started? No, if you are realistic about where you can afford to purchase you should do ok. For example, if you want to live in Bondi, and you are unable to afford your “first” property there, you can choose to start in an affordable area, and have a plan to achieve your ultimate goal. Sacrifices have to be made. Australia is full of opportunities; it’s just what you make of them. Take action now.