Steve Palise // 31 Years // Constitution Hill, Sydney
As an Engineer by trade, I always had a fascination with numbers. At the time, I thought working hard and being good at my job meant I would earn big dollars and get to live the life I wanted. After a few years into my career, I started to realise that even though the job provided me with a good income, I would have to continue in this field for the next twenty years with only two days off per week (the weekend). I didn’t hate my job, but I did want the flexibility to work on my terms and not someone else’s. So it got me thinking…
Around 2012, stories in media began circulating about how some young investors were building property portfolios and in turn, creating passive incomes. It was at this time that I decided that investing in property was the direction I was going to take to reach my personal financial freedom.
So hence, I began my investing journey without really knowing what I was doing with the goal to obtain a passive income of $100k. I never cared to become ridiculously wealthy, I just wanted the flexibility to travel enjoy “life” whenever I wanted.
In 2012, I purchased my first property in Blacktown, Sydney’s western suburbs. It cost me $230,000 and was neutrally geared. I was working in the Northern Beaches at the time and had many colleagues scoff and laugh at the idea that I was buying a property that “far” out west and for “that much money”. At the time, there was an ability to leverage much higher than nowadays, and I secured a 95% loan. So, with just my $20,000 in savings, I entered the property market. Growing up in Sydney’s western suburbs gave me comfort thinking that I knew the area. This meant that I knew where the schools, transport, and what other properties were being sold for on realestate.com.au with little knowledge that these factors were not crucial in regards to property investing!
My first property purchase in 2012. Blacktown, Sydney
By sheer luck I timed the market perfectly and had equity growing at a rapid rate. I used this equity to buy a few high cashflow properties in regional towns such as Cairns and Forster. Although great for my cashflow and building my passive income, they just did not perform as well as my Blacktown property. At this point I realised that I needed to build my base portfolio on growth as a primary objective without purely chasing the highest yielding properties I could find. For that reason, my last three purchases have been in capital cities.
Lessons learned. One of my capital city investments. Eagleby, Brisbane
Since joining Rethink Investing, I have personally been involved in over 400 property transactions. I have seen the full spectrum of clients; ones that have 10+ property portfolios to those buying their first investment. Here are some of the lessons I’ve learned:
– Knowing a property market is more than knowing how much properties sell for on realestate.com.au or where the local shopping centre is.
– Buying near the beach or water are not historically the best performing assets (although will be stable).
– The property market is cyclic. Previous growth is not an indication of future growth.
– Don’t buy with emotions or because it would be a “nice place to live”. You wouldn’t buy shares because the company has a nice company culture or a nice logo.
– Avoid areas of oversupply like the plague.
– Off the plan purchases and medium/high-density apartments do not perform as well as houses.
– Many people would love to be a ‘developer’. Property development is a tough game with long hours and mountains of paperwork. Even experienced investors get burnt tackling these – leave it to the experts!
– Numbers speak. Look at the stats and the return on investment. Making $400k on an $800k purchase is not as impressive as making $200k on a $200k investment (although the $400k person will boast more and is why there is the whole argument about negative gearing).
– Your parents, broker, financial advisor and friends are not the best people to listen to for property advice.
– Don’t be afraid to admit you aren’t the expert, seek them out and don’t be afraid to ask for help.
– Find a great broker and keep them. In the past I was very naive and thought “how hard can getting a loan be?”. I repeatedly see clients who are struggling to progress their portfolio due to poorly structured loans and lenders.
– Always base investing on the numbers. Numbers are not only related to cash flow, they should include vacancy rates, median house prices, population growth, median household incomes, suburb migration, infrastructure spending etc.
– Always be mindful of your cash flow – most of my client’s borrowing power is what stops their progression (even more important with today’s tighter lending).
Know your risk profile. An 18-year-old should not be buying the same types of properties as a 40-year-old with three kids.
– Mitigate as much risk as possible. Run all scenarios on your portfolio – increased interest rates, property prices dropping, unexpected vacancy, unexpected maintenance bills, etc.
– No matter how many podcasts and books you have read you will still make mistakes when investing. Find a mentor or a reputable buyers agency.
Understand what stage you are at with investing!
Plan what you are trying to achieve!
Understand the exit strategy!
WHERE TO INVEST
– Affordability will be king!
– Properties in Sydney and Melbourne are the most unaffordable today than they have ever been in history (it is expected that these markets will stay reasonably flat for the next 3-5 years).
– The moving markets in the medium term will be major cities and properties in Tasmania and Queensland. Stick to Hobart, Launceston, Brisbane and Gold Coast.
– Most importantly, enjoy investing!
It’s a long game so why not have some fun while doing it?
Senior Property Strategist
1300 965 551