“You don’t get rich from what you earn. You get rich from how you invest.”
That is the best piece of advice I’ve ever received. Thank you to my old work colleague, Bill. Bill was independently very wealthy and he made his fortune from property. I felt that I might be able to do the same.
1. The decision
Once the decision to have property as my primary investment was made, I had to research how to invest. My knowledge then was pretty scrappy but I knew I needed to save a deposit. At the time (1999) I started looking at inner city apartments priced at around $200,000. My quick calculations said that I’d need a deposit of about $40,000 with an additional $10,000 or thereabouts for other purchasing costs.
Six months of hard saving later, I’d managed to amass a paltry $5,000. This was never going to work. I knew I had to think outside the box.
2. The strategy
In 1999, properties were increasing in value relatively quickly. I felt I was being left behind. To get into the market faster, I decided to team up with a colleague of mine. We saw a lawyer and walked out with the paperwork to say that we were now in a joint venture to buy property!
I was on the way!
3. The big breakthrough
Within a year we had a joint deposit of around $20,000. My conversations with banks were proved fruitless so I decided, in desperation, to talk to a mortgage broker. I was shocked when he was able to get us a loan on 10% deposit! We were ready to enter the market!
4. The dumb decision
With our newfound enthusiasm, we set about looking for an investment property that would cover its costs. While I knew little about positive cash-flow property, and nothing about depreciation, I figured a $200,000 apartment that brought in $320 a week rent would serve us well. When I found it we were ecstatic. The only problem was that it was off-the-plan and wouldn’t be ready for a year.
We should have kept looking and found a place that we could purchase straight away but instead we signed on the dotted line and handed over our $20,000 deposit. Then we had to wait for the property to be built. And wait we did.
Over a year later, we were finally handed the keys to our new investment property. We put tenants in there (no insurance, of course – another mistake) and soon received our first cheque as landlords.
6. The second purchase
At the time I thought I was moving so slowly, but I managed to purchase a second apartment by myself about three years later. This apartment was a fixer-upper in a desirable inner suburb. I was able to use the equity (about $30,000) in the first property as well as the $20,000 I’d saved over those three years. This apartment has more than doubled in value in nine years.
From there, I have been able to use equity to purchase properties relatively regularly and my portfolio is now in double figures.
Apart from saving a deposit, the hardest thing was to get the loan in the first place. We might be used to comparing banks but there are lots of lending institutions who may be quite willing to lend you money. Our mortgage broker was able to secure a far better deal with my existing bank than I was able to on my own.
Buying off the plan was risky. Fortunately, upon completion, the property was worth more than the $200,000 we paid for it. What we lost, however, was time. By the time the property actually settled, we had managed to save another $12,000 (which would have been far greater with the addition of rental income). We probably could have purchased a second property then!
The best decision I made was to enter into the joint venture. While you have to be very careful to iron out all the legalities, joint ventures can be a great way to get into the market. In the end I only entered into one joint venture property (which we’ve since sold at a considerable profit) but it gave me a start that I would never otherwise have had!