Interview with sailor – 18th March 2007
At first when Ruby invited me to do this interview, I didn’t think I would have much to offer Somersoft forumites. However, after having answered all the questions below…I realised this process has helped me to evaluate critically my property journey. I’ve learned more about my investing strengths and where my areas for improvement are. So answering these questions yourself is a great way to learn from your own experience. Thank you Ruby!
How did you get involved in property?
I’d just finished uni (1978) and wanted “my own home”. Raised with a “rent money is dead money” philosophy, I simply followed my parent’s philosophy of owning your own home. So I bought my first PPOR in 1981.
What is your property investment philosophy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?
In the mid-1990’s, I realised my SMSF wasn’t going to give me a decent retirement lifestyle, and I didn’t want to work full-time forever. So I would need to rely on a passive income, and IP’s seemed the most logical solution to providing me with CF.
My preference now is to buy, renovate where necessary, and hold. I would only sell if I really needed to.
What is your IP / property story so far?
In 1981 I bought my PPOR (Bris house) and sold it in 1988 to buy my next PPOR (Sydney house). Not being a very good gardener, my next PPOR (Cairns) was a unit. In 1994 I bought the commercial unit I was renting for my business. 1995 I went into a joint venture and bought a Cairns house, which I subsequently sold in 2001 to my then ex-partner. Meanwhile the business grew and I bought the commercial unit next door in 1997. In 1999 Mum and I bought a unit (IP) which I sold when she died in 2004. This financed two (lower priced) IP units with a better combined CF than the one I owned with Mum. In 2004 I did a joint venture with my best friend and we bought two units (single title) in Innisfail on the river. My SMSF (raising cash from playing the stock market) financed another IP (unit) in Cairns in 2005. 2006 was a big property year. My IP-partner and I bought a house which we sold the same year (it was hit badly by a cyclone). We reinvested this money in a 4-unit (single title) block in Innisfail, which we are renovating. The SMSF did well with shares, to fund another IP 2-unit (single title) block in Innisfail.
Until then, I didn’t really have a plan, just a philosophy of buying for CF for my retirement. I was talking with my cousin one night, and he explained LOE to me and leveraging property to invest in more property. I was stunned and excited. I sat up most of the night doing the sums. It was then I started reading everything I could get about property investment, and I joined the SS forum. Wow! The light bulbs went on. I bought my Beach House (my gardening skills have improved) and set up an HDT. Now I’m negotiating to buy another unit. So now the tally is 12 properties with an another one in the pipeline.
As you can see I started off selling my PPOR’s to buy the next one…der! I never knew one could leverage property to buy more property. So my early years in IP’s were slow and naïve.
Is there a story of a really good IP that you would be prepared to share with us?
In January 2006, my IP-partner and I purchased a 5-bed weatherboard home with magnificent 270 degree views high on a hill. We paid $220K and the new tenant was due to move in on March 20th….the day Cyclone Larry hit Innisfail. We’d taken out building insurance and landlord’s insurance (loss of rent) for 12 month’s rent. As a result of the cyclone, we lost the roof and the entire house (including the lovely polished floorboards) was devastated. The insurance paid up $253K and we sold it “as is” for $172K six months later. So we made a tidy profit (after CGT), which we subsequently invested in a 4-unit block (one title), currently under renovation.
It certainly pays to protect one’s IP with insurance.
Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?
My commercial units have been a mixed blessing. Since I first purchased them there’s been little CG, despite them being in a great location. However, the CF they have produced over the years has supported my IP mortgages. So I can’t really complain about that.
Eventually the CG will be there….eventually!
My other really bad resi IP was purchased fully furnished. I spent money on extra furniture. Within 18 months the furniture all needed replacing, so I sold the furniture and rented it unfurnished. It’s now had the same tenant for over two years and will remain unfurnished.
Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)?
In 2000 I started my own SMSF and played the ASX. I used a stockbroker to discuss my purchases, and at times made totally independent decisions that left him aghast. However, they paid off, and I made enough money to buy the two IP’s mentioned above for the SMSF. I still have a few shares, which I’m growing to fund another IP in the future. For me the stock market is simply a way of growing capital to buy property.
Shares take a bit more time management than property. I really have to keep an eye on them and update my spreadsheets every day.
What criteria do you use when selecting a property to purchase?
My criteria have changed over the years. I now prefer units, and I tend to look only in my own backyard (within 100 klms of where I live). I’m more familiar with my own territory and know the good and not so good suburbs. I also like to visit properties so I can see what I’m buying, and I can check easily on renos and the condition of the property. In my own backyard, also means I can access a familiar and reliable group of tradies, who know my standards and will deliver the goods.
I’m leaning more towards blocks of units on a single title, to avoid paying body corporate fees and having property where I can make decisions independently. I prefer properties that are easy to rent and appeal to employed tenants who want longer rather than shorter leases.
I’ve improved in learning how to buy CF+ properties. I didn’t even consider this in the early days, and didn’t even know it was an option.
I don’t buy furnished units, and if they are furnished…I sell the furniture. I get longer tenancies with unfurnished units, and tenants who have shown the financial ability to acquire their own chattels.
After reading George Ross’ “Trump Strategies for Real Estate: Billionaire Lessons for the Small Investor”, I want to buy rundown properties to renovate, and go the extra mile in making them into something unique and special, to maximise CF and increase the LVR.
What structure do you use for your investing?
I do wish I’d known about trusts 30 years ago. I’ve only had my HDT since June 2006, and even though the bookkeeping is a little more involved, it’s a better safeguard for my IP’s, given I’m in an industry which is potentially prone to litigation.
I won’t be paying stamp duty to transfer properties into trusts. I will probably sell those ones eventually to pay out mortgages on properties in the trust, if and when the time comes.
What do you feel has been your worst mistake during your time investing?
I’m not into making mistakes in my life … “does not compute” … I only have learning experiences…heaps of them!
I think I’ve had three key learning experiences over the years:
If a budding property investor asked "what are the top 5 things I should do", you would say?
And if that same budding investor asked "what 5 things should I avoid", you would say?
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?
Read books. Talk to people. Ask questions. Find out how others do their deals. Know there is no problem that cannot be solved. I think it was De Bono who said “There are no new solutions or inventions – only a rearrangement of the known facts”.
How important is planning to being a successful investor?
Obviously planning wasn’t all that crucial in my early investing years…I sort of lucked into the right place at the right time in some ways. Flying by the seat of my pants has not been all bad. Now that I’m more highly leveraged, planning is extremely important and without a sound plan, I could come severely unstuck and not achieve my goals!
Having said that, I think being flexible is also important. All plans are subject to change.
Do you feel joint ventures can be a beneficial way to grow your portfolio?
Absolutely! I have a block of 2-units and a block of 4-units with my IP-partner. (My IP-partner is my best friend, and we were best friends years before we became IP-partners.) Neither of us would have been able to go it alone, at that point in time. There are a few assets we have working well for us:
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)
The natural progression for me is starting small. It doesn’t matter whether one starts with a PPOR or an IP. This really depends on the person’s goals and current financial situation, and does need to be carefully analysed before starting out.
There is no need to go through the whole progression. One can start anywhere, provided they have the necessary expertise, or time to learn the skills required. It’s a very individual journey, and needs to be tailored to the individual, and their particular goals and circumstances.
Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses?
I’ve detailed my personal preferences on the metro vs regional, and units vs houses issues above, and this works well for me. However, this would not suit everyone.
When it comes to CF vs CG, this really depends on an individual’s current circumstances (e.g., financial, family size, investment goals, age, etc). At the moment it is integral to my plan that I have a balance of CF and CG in my property portfolio.
What do you prefer, fixed or floating interest rates and why?
Currently (while interest rates are half what they were in the 1980’s), I prefer fixed interest rates, although I do have one mortgage with a variable rate (to hedge my bets). Taking out one loan with variable rates was recommended by my Mortgage Broker, and makes good sense to me in the present market.
Having mainly fixed rates gives me more control over my budget. I can predict my expenses over the next few years with more accuracy.
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?
Gosh…that’s a tough one! Australia is such a mixed market at present, with different property cycles operating in different States, and on down to even a town or city level.
I don’t believe the market is harder for newer investors. If they want a bargain…there are bargains to be had. If they want finance…there’s finance to be had. The only thing stopping investors from getting into the market are the constraints they put on themselves.
Newer investors may be disadvantaged by the plethora of enticing “must have” doodads currently available in the marketplace…doodads that weren’t around when I first started out. There is an increasing socio-economic culture in the world of acquiring doodads that one may “want” but may not actually “need” (e.g., fancy cars, electronic and expensive entertainment, electronic gadgets, overseas trips, brand-name clothes, etc). I am reminded of the lady who prayed for a Mercedes Benz. What she got was a MiniMoke. What she needed was transport!
Newer investors have the advantage of easy access to so much more information and data, not available to me when I started out. There was no internet, less flexible loans, and less books and IP educational material around. As an example, the bank knocked me back for my first loan application. The lender said I was a single female who earned more money than he (and he was supporting a wife and three children), and who didn’t have a husband. So he couldn’t give me a home loan, despite my greater disposable income. He referred me to a building society where I paid a higher interest rate. It never occurred to me at the time to shop around.
So for newer investors I would suggest you take advantage of what the present market has to offer. Don’t listen to the “Negative Nellies”… find solutions so you can achieve your goals!
Comments regarding this interview...... http://www.somersoft.com/forums/showthread.php?p=277841#post277841
At first when Ruby invited me to do this interview, I didn’t think I would have much to offer Somersoft forumites. However, after having answered all the questions below…I realised this process has helped me to evaluate critically my property journey. I’ve learned more about my investing strengths and where my areas for improvement are. So answering these questions yourself is a great way to learn from your own experience. Thank you Ruby!
How did you get involved in property?
I’d just finished uni (1978) and wanted “my own home”. Raised with a “rent money is dead money” philosophy, I simply followed my parent’s philosophy of owning your own home. So I bought my first PPOR in 1981.
What is your property investment philosophy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)?
In the mid-1990’s, I realised my SMSF wasn’t going to give me a decent retirement lifestyle, and I didn’t want to work full-time forever. So I would need to rely on a passive income, and IP’s seemed the most logical solution to providing me with CF.
My preference now is to buy, renovate where necessary, and hold. I would only sell if I really needed to.
What is your IP / property story so far?
In 1981 I bought my PPOR (Bris house) and sold it in 1988 to buy my next PPOR (Sydney house). Not being a very good gardener, my next PPOR (Cairns) was a unit. In 1994 I bought the commercial unit I was renting for my business. 1995 I went into a joint venture and bought a Cairns house, which I subsequently sold in 2001 to my then ex-partner. Meanwhile the business grew and I bought the commercial unit next door in 1997. In 1999 Mum and I bought a unit (IP) which I sold when she died in 2004. This financed two (lower priced) IP units with a better combined CF than the one I owned with Mum. In 2004 I did a joint venture with my best friend and we bought two units (single title) in Innisfail on the river. My SMSF (raising cash from playing the stock market) financed another IP (unit) in Cairns in 2005. 2006 was a big property year. My IP-partner and I bought a house which we sold the same year (it was hit badly by a cyclone). We reinvested this money in a 4-unit (single title) block in Innisfail, which we are renovating. The SMSF did well with shares, to fund another IP 2-unit (single title) block in Innisfail.
Until then, I didn’t really have a plan, just a philosophy of buying for CF for my retirement. I was talking with my cousin one night, and he explained LOE to me and leveraging property to invest in more property. I was stunned and excited. I sat up most of the night doing the sums. It was then I started reading everything I could get about property investment, and I joined the SS forum. Wow! The light bulbs went on. I bought my Beach House (my gardening skills have improved) and set up an HDT. Now I’m negotiating to buy another unit. So now the tally is 12 properties with an another one in the pipeline.
As you can see I started off selling my PPOR’s to buy the next one…der! I never knew one could leverage property to buy more property. So my early years in IP’s were slow and naïve.
Is there a story of a really good IP that you would be prepared to share with us?
In January 2006, my IP-partner and I purchased a 5-bed weatherboard home with magnificent 270 degree views high on a hill. We paid $220K and the new tenant was due to move in on March 20th….the day Cyclone Larry hit Innisfail. We’d taken out building insurance and landlord’s insurance (loss of rent) for 12 month’s rent. As a result of the cyclone, we lost the roof and the entire house (including the lovely polished floorboards) was devastated. The insurance paid up $253K and we sold it “as is” for $172K six months later. So we made a tidy profit (after CGT), which we subsequently invested in a 4-unit block (one title), currently under renovation.
It certainly pays to protect one’s IP with insurance.
Is there a story of a really bad (or not so good) IP that you would be prepared to share with us?
My commercial units have been a mixed blessing. Since I first purchased them there’s been little CG, despite them being in a great location. However, the CF they have produced over the years has supported my IP mortgages. So I can’t really complain about that.
Eventually the CG will be there….eventually!
My other really bad resi IP was purchased fully furnished. I spent money on extra furniture. Within 18 months the furniture all needed replacing, so I sold the furniture and rented it unfurnished. It’s now had the same tenant for over two years and will remain unfurnished.
Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)?
In 2000 I started my own SMSF and played the ASX. I used a stockbroker to discuss my purchases, and at times made totally independent decisions that left him aghast. However, they paid off, and I made enough money to buy the two IP’s mentioned above for the SMSF. I still have a few shares, which I’m growing to fund another IP in the future. For me the stock market is simply a way of growing capital to buy property.
Shares take a bit more time management than property. I really have to keep an eye on them and update my spreadsheets every day.
What criteria do you use when selecting a property to purchase?
My criteria have changed over the years. I now prefer units, and I tend to look only in my own backyard (within 100 klms of where I live). I’m more familiar with my own territory and know the good and not so good suburbs. I also like to visit properties so I can see what I’m buying, and I can check easily on renos and the condition of the property. In my own backyard, also means I can access a familiar and reliable group of tradies, who know my standards and will deliver the goods.
I’m leaning more towards blocks of units on a single title, to avoid paying body corporate fees and having property where I can make decisions independently. I prefer properties that are easy to rent and appeal to employed tenants who want longer rather than shorter leases.
I’ve improved in learning how to buy CF+ properties. I didn’t even consider this in the early days, and didn’t even know it was an option.
I don’t buy furnished units, and if they are furnished…I sell the furniture. I get longer tenancies with unfurnished units, and tenants who have shown the financial ability to acquire their own chattels.
After reading George Ross’ “Trump Strategies for Real Estate: Billionaire Lessons for the Small Investor”, I want to buy rundown properties to renovate, and go the extra mile in making them into something unique and special, to maximise CF and increase the LVR.
What structure do you use for your investing?
I do wish I’d known about trusts 30 years ago. I’ve only had my HDT since June 2006, and even though the bookkeeping is a little more involved, it’s a better safeguard for my IP’s, given I’m in an industry which is potentially prone to litigation.
I won’t be paying stamp duty to transfer properties into trusts. I will probably sell those ones eventually to pay out mortgages on properties in the trust, if and when the time comes.
What do you feel has been your worst mistake during your time investing?
I’m not into making mistakes in my life … “does not compute” … I only have learning experiences…heaps of them!
I think I’ve had three key learning experiences over the years:
- Selling property instead of leveraging.
- Not having a property-savvy accountant until 2006.
- Not discussing structure with a property-savvy lawyer before buying my very first property.
If a budding property investor asked "what are the top 5 things I should do", you would say?
- Do your research. Find out the sales history of the property, and what recent sales have been for comparable properties in the area.
- Always get a building and pest inspection, and have the appropriate clauses put in the Contract of Sale.
- Have a good team working with you: Property lawyer (not just any legal eagle), Property accountant (not just any accountant), Mortgage Broker (not affiliated with a specific lending institution), a few good REA’s (not just one or two), and a good Property Manager. (I manage my own properties in Cairns, and have a great PM in Innisfail.)
- Read, read, read, and then read some more. Ask a million questions of everyone involved. Learn heaps.
- Know the locality in which you are buying. Search the Local Government web sites to find out about flood, fire, storm surge, toxic land, easements, cultural and heritage overlays, infrastructure, population growth and demographics, local industry, transport and future road plans. All the information you ever wanted to know is there and easily found. Google is a godsend! Talk to the neighbours…they know the history of the property and the locality.
- I know you only asked for 5, but my 6th one is really the most important and even though left until last, is by no means the least. I have found using the Laws of Attraction to be a blessing when I find myself being scared about taking risks. Using the LOA has given me much more confidence and increased my SANF exponentially.
And if that same budding investor asked "what 5 things should I avoid", you would say?
- FEAR, FEAR, FEAR, FEAR, and more FEAR. Fear stops us from doing things, taking risks, having a positive attitude and solving problems.
- FEAR there won’t be another property this good. Being emotionally attached to any property, including a PPOR. There will always be another good property for sale!
- FEAR that one cannot take the next step without selling a property. Avoid selling a property if you don’t have to. Explore all the other financial alternatives first.
- FEAR that it won’t be a good deal. Also includes “analysis paralysis”. This kind of fear stops one from taking a risk – even a well calculated risk.
- FEAR of being afraid. This will definitely undermine one’s SANF. Good grief! Feel the fear and do it anyway. Facing one’s fears head on, solving problems and moving on is the only way to see your fears melt away.
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?
Read books. Talk to people. Ask questions. Find out how others do their deals. Know there is no problem that cannot be solved. I think it was De Bono who said “There are no new solutions or inventions – only a rearrangement of the known facts”.
How important is planning to being a successful investor?
Obviously planning wasn’t all that crucial in my early investing years…I sort of lucked into the right place at the right time in some ways. Flying by the seat of my pants has not been all bad. Now that I’m more highly leveraged, planning is extremely important and without a sound plan, I could come severely unstuck and not achieve my goals!
Having said that, I think being flexible is also important. All plans are subject to change.
Do you feel joint ventures can be a beneficial way to grow your portfolio?
Absolutely! I have a block of 2-units and a block of 4-units with my IP-partner. (My IP-partner is my best friend, and we were best friends years before we became IP-partners.) Neither of us would have been able to go it alone, at that point in time. There are a few assets we have working well for us:
- We both use the LOA.
- We are both on the same page with our investing philosophy.
- We both read heaps of material on IP’s and discuss what we have learned.
- We discuss all the issues before making a decision.
- We both have absolute financial trust in each other.
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)
The natural progression for me is starting small. It doesn’t matter whether one starts with a PPOR or an IP. This really depends on the person’s goals and current financial situation, and does need to be carefully analysed before starting out.
There is no need to go through the whole progression. One can start anywhere, provided they have the necessary expertise, or time to learn the skills required. It’s a very individual journey, and needs to be tailored to the individual, and their particular goals and circumstances.
Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses?
I’ve detailed my personal preferences on the metro vs regional, and units vs houses issues above, and this works well for me. However, this would not suit everyone.
When it comes to CF vs CG, this really depends on an individual’s current circumstances (e.g., financial, family size, investment goals, age, etc). At the moment it is integral to my plan that I have a balance of CF and CG in my property portfolio.
What do you prefer, fixed or floating interest rates and why?
Currently (while interest rates are half what they were in the 1980’s), I prefer fixed interest rates, although I do have one mortgage with a variable rate (to hedge my bets). Taking out one loan with variable rates was recommended by my Mortgage Broker, and makes good sense to me in the present market.
Having mainly fixed rates gives me more control over my budget. I can predict my expenses over the next few years with more accuracy.
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?
Gosh…that’s a tough one! Australia is such a mixed market at present, with different property cycles operating in different States, and on down to even a town or city level.
I don’t believe the market is harder for newer investors. If they want a bargain…there are bargains to be had. If they want finance…there’s finance to be had. The only thing stopping investors from getting into the market are the constraints they put on themselves.
Newer investors may be disadvantaged by the plethora of enticing “must have” doodads currently available in the marketplace…doodads that weren’t around when I first started out. There is an increasing socio-economic culture in the world of acquiring doodads that one may “want” but may not actually “need” (e.g., fancy cars, electronic and expensive entertainment, electronic gadgets, overseas trips, brand-name clothes, etc). I am reminded of the lady who prayed for a Mercedes Benz. What she got was a MiniMoke. What she needed was transport!
Newer investors have the advantage of easy access to so much more information and data, not available to me when I started out. There was no internet, less flexible loans, and less books and IP educational material around. As an example, the bank knocked me back for my first loan application. The lender said I was a single female who earned more money than he (and he was supporting a wife and three children), and who didn’t have a husband. So he couldn’t give me a home loan, despite my greater disposable income. He referred me to a building society where I paid a higher interest rate. It never occurred to me at the time to shop around.
So for newer investors I would suggest you take advantage of what the present market has to offer. Don’t listen to the “Negative Nellies”… find solutions so you can achieve your goals!
Comments regarding this interview...... http://www.somersoft.com/forums/showthread.php?p=277841#post277841
