February 2009 – I’m on my way to the airport en route to Melbourne for a meeting with one of the best mortgage broking firms in Australia (Investors Direct). My phone rings. It’s a real estate agent who has been engaged by the elderly owners of one of the units in the same group as IP #3 & #6. He’s been given the task of tracking me down.
The elderly owners of the villa have decided to move into an aged care facility. The facility requires them to pay a large cash deposit within a specific time frame in order to retain their place in the facility. They know how I do business and want to do business with me.
This was an opportunity for me to create, yet another, win-win deal. I’m willing to sign an unconditional contract (no conditions whatsoever, including no finance conditions) and they are willing to sell for the rates assessment value (which is less than true market value). Of course, they could renovate the property and sell for more, but they are in their 90’s and their kids are in their 60’s, so they would prefer quick and guaranteed closure over trying to maximise their return.
However, it became clear that I had hit the serviceability wall with my lender. This was a strategic purchase in that it was in the same group of 5 villas as IP #3 and #6. I just had to have it! Even if I don’t end up owning all 5, I still would have control of the group and the opportunity to save ongoing costs by taking over management of the group from the existing strata management company. So, through a very stressful and complicated process, I re financed 2 of my variable loan properties away from my original lender to another lender and ended up with a $70k cash take out. This enabled me to fund the 20% deposit and reno costs on IP #7, with some loose change to act as a buffer in the offset account. I was able to get finance approval from a 3rd lender for IP #7.
Over the past 6 months, I’ve re-financed my fixed rate loans to variable rate loans and extracted a lot of equity in the process. I’ve also done a re-valuation of IP #7, for which I paid $250,000 and it came in at $320,000, so the cash take out, with an 80% LVR, was $56,000. Not bad for a one month renovation. Market value on that property today would be closer to $350,000.
Some of the equity release cash is sitting in offset accounts, so there are no holding costs on those funds, while some has been invested in shares to ride the stock market recovery we have been enjoying. I’m still on the lookout for additional property deals, though.
Misc things I’ve learned along the way:
1. Know yourself! Your risk profile, strengths, circumstances, lifestyle
etc. These will underpin any successful investment strategy.
2. Think big, push out of your comfort zone and never give up.
3. Focus on the goal and the dream NOT the obstacles.
4. Specialise. Find your “thing†(inner city villas, suburban subdivision,
build and hold etc) then keep doing it. Rinse and repeat.
5. Challenge everything and find out what works for YOU. Don’t always
accept what the “experts†say. Houses vs Villas & Units, buy old vs
build new, use a different lender for each property, never cross
collateralise etc etc. There are no hard and fast rules. Different
strategies work for different people depending on timing and
circumstances. There is no right or wrong. Only what’s right for
YOU.
6. Stay under the radar with any one lender. From my experience, as
soon as the lenders exposure gets to around the $1m mark, the
previously easy money grinds to a halt. So, at some point
diversification of lenders is a must in order to grow a portfolio.
7. If you’re just starting out, you don’t have to know everything and
have all the answers to all of the potential problems. Just get stuck
into it and the rest will follow. You can learn more and course
correct along the way.
8. I don’t subscribe to the view that things have to be hard to be
worthwhile. If they are that hard, then maybe you’re not doing the
thing that resonates with you. If I can’t have fun doing something, I
don’t do it.
So there you have it. A $2.5m residential property portfolio in 36 months with $1m in equity. If I can do it, anyone can. I’m just an ordinary guy who decided to push past the fear and have a go at doing something. What I’ve done isn’t very exciting, glamorous or “sexyâ€. However, most of the people who have done well with IP’s could say the same. It seems to be the simple, repeatable strategies, when applied consistently over time that produce amazing results.
Of course, not all of the money I’ve made over the past few years has been from real estate. As I’ve released some equity over time with re-financing, I’ve invested in some counter cyclical vehicles (bank shares, for example) and have had great returns on those investments.
Where to from here? I’m still trying to work that out. Although I’m getting a little bored with what I’ve been doing to date, I feel I should keep at it as it is something that clearly works very well for me.
For each rental property, I sponsor the education of a child in Bali, who, without sponsorship, would not receive an education. I hope to expand on this type of charity work to include sponsoring schools, not just individual children. Perhaps I could apply the “think big†lessons I’ve learned through my investments to other aspects of my life, including charity work. It’s something worth trying, I think.
I’ll also continue to pursue my passion of becoming a writer through magazine articles, eBooks etc. Maybe I’ll get an income stream from my eBook sales. Maybe not. At least I’ll be having fun doing it and perhaps helping a few people along the way.
If you’ve made it through to the end, thanks forhanging in there. I appreciate your time and I hope it’s been worthwhile. My story may not be very “Fastlaneâ€, but it’s the only one I have. For now :smxB:
The elderly owners of the villa have decided to move into an aged care facility. The facility requires them to pay a large cash deposit within a specific time frame in order to retain their place in the facility. They know how I do business and want to do business with me.
This was an opportunity for me to create, yet another, win-win deal. I’m willing to sign an unconditional contract (no conditions whatsoever, including no finance conditions) and they are willing to sell for the rates assessment value (which is less than true market value). Of course, they could renovate the property and sell for more, but they are in their 90’s and their kids are in their 60’s, so they would prefer quick and guaranteed closure over trying to maximise their return.
However, it became clear that I had hit the serviceability wall with my lender. This was a strategic purchase in that it was in the same group of 5 villas as IP #3 and #6. I just had to have it! Even if I don’t end up owning all 5, I still would have control of the group and the opportunity to save ongoing costs by taking over management of the group from the existing strata management company. So, through a very stressful and complicated process, I re financed 2 of my variable loan properties away from my original lender to another lender and ended up with a $70k cash take out. This enabled me to fund the 20% deposit and reno costs on IP #7, with some loose change to act as a buffer in the offset account. I was able to get finance approval from a 3rd lender for IP #7.
Over the past 6 months, I’ve re-financed my fixed rate loans to variable rate loans and extracted a lot of equity in the process. I’ve also done a re-valuation of IP #7, for which I paid $250,000 and it came in at $320,000, so the cash take out, with an 80% LVR, was $56,000. Not bad for a one month renovation. Market value on that property today would be closer to $350,000.
Some of the equity release cash is sitting in offset accounts, so there are no holding costs on those funds, while some has been invested in shares to ride the stock market recovery we have been enjoying. I’m still on the lookout for additional property deals, though.
Misc things I’ve learned along the way:
1. Know yourself! Your risk profile, strengths, circumstances, lifestyle
etc. These will underpin any successful investment strategy.
2. Think big, push out of your comfort zone and never give up.
3. Focus on the goal and the dream NOT the obstacles.
4. Specialise. Find your “thing†(inner city villas, suburban subdivision,
build and hold etc) then keep doing it. Rinse and repeat.
5. Challenge everything and find out what works for YOU. Don’t always
accept what the “experts†say. Houses vs Villas & Units, buy old vs
build new, use a different lender for each property, never cross
collateralise etc etc. There are no hard and fast rules. Different
strategies work for different people depending on timing and
circumstances. There is no right or wrong. Only what’s right for
YOU.
6. Stay under the radar with any one lender. From my experience, as
soon as the lenders exposure gets to around the $1m mark, the
previously easy money grinds to a halt. So, at some point
diversification of lenders is a must in order to grow a portfolio.
7. If you’re just starting out, you don’t have to know everything and
have all the answers to all of the potential problems. Just get stuck
into it and the rest will follow. You can learn more and course
correct along the way.
8. I don’t subscribe to the view that things have to be hard to be
worthwhile. If they are that hard, then maybe you’re not doing the
thing that resonates with you. If I can’t have fun doing something, I
don’t do it.
So there you have it. A $2.5m residential property portfolio in 36 months with $1m in equity. If I can do it, anyone can. I’m just an ordinary guy who decided to push past the fear and have a go at doing something. What I’ve done isn’t very exciting, glamorous or “sexyâ€. However, most of the people who have done well with IP’s could say the same. It seems to be the simple, repeatable strategies, when applied consistently over time that produce amazing results.
Of course, not all of the money I’ve made over the past few years has been from real estate. As I’ve released some equity over time with re-financing, I’ve invested in some counter cyclical vehicles (bank shares, for example) and have had great returns on those investments.
Where to from here? I’m still trying to work that out. Although I’m getting a little bored with what I’ve been doing to date, I feel I should keep at it as it is something that clearly works very well for me.
For each rental property, I sponsor the education of a child in Bali, who, without sponsorship, would not receive an education. I hope to expand on this type of charity work to include sponsoring schools, not just individual children. Perhaps I could apply the “think big†lessons I’ve learned through my investments to other aspects of my life, including charity work. It’s something worth trying, I think.
I’ll also continue to pursue my passion of becoming a writer through magazine articles, eBooks etc. Maybe I’ll get an income stream from my eBook sales. Maybe not. At least I’ll be having fun doing it and perhaps helping a few people along the way.
If you’ve made it through to the end, thanks forhanging in there. I appreciate your time and I hope it’s been worthwhile. My story may not be very “Fastlaneâ€, but it’s the only one I have. For now :smxB:
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