Property Investment - It Only Took Me 36 Years To Get Out Of A Fast Spending Lifestyle Into A Steady Capital Growth Asset!
Mike Heals story Continued...
My earliest property investment advice came from my dad who would always say buy your own home. While it has eventually proved to be excellent advice I think back and shake my head that I didn’t do it earlier.
'In fact knowing what I know, now I wish somebody took me by the scruff of my neck and shook some financial investment sense into me at a very young age.
I first dabbled in property investment in my early 20’s. My sister wanted to buy a house in Brisbane. She just needed a small amount to complete the purchase of this property and asked me if I would like to contribute with the view that I would have a small cash windfall when the property sold.
Back then when she sold it in the late 80’s for double the price that she bought it, I took my little kick out of it, and wish now I had reinvested the money then back into a property investment of my own.
I believe that we live and learn when it comes to investment.
This is my story.
I had read all the notable books on property investment but I always believed that there was somehow a catch. It couldn’t be that easy.
Plus I couldn’t afford to invest at that time. I did find the catch in the end though but it was my situation that was the problem. I’ll cover that in a minute.
While I now hold down a professional job, this has not always been the case. As I worked my way up the ladder I was always thinking that I would own a property investment when I earned more.
However, the reality was that the more that I earned the more I spent. I really didn’t have a handle on the budget side of things. One month I seemed to have a fist full of dollars and all that meant in reality was “let’s spend” and the next month it was, oops I’ve got interest bills to pay.
“Budget” really was a dirty word to me but when I finally looked at my situation one day I knew I had to do something about it and my future.
Realising that budgets and I didn’t get along, I decided to track my expenditure, which really was a budget without restrictions. I invested in a computer program and found that tracking my money was something I could do and was happy to do strictly.
It wasn’t until I did a 12-month audit that it hit me just how much was going where. The biggest killer was my interest on bills for this and that. It dawned on me now just were it was costing me and that I had better arrest this runaway train before it got any worse. I was simply living a lifestyle that exceeded my income. This was the catch into my not being able to make a property investment to date!
So I decided to haul in my expensive credit card lifestyle and rid myself of each debt and create a small cash surplus for unexpected expenses.
I have to say, it was the best thing I have done for myself. I now save a fortune from not paying the interest bills on stuff that in many instances I didn’t need any way!
Also the computer program that I bought was able to project my financial position including my superannuation at retirement and frankly it concerned me. I am fortunate to have a good income right now with sizable compulsory super contributions but there it was in black and white in front of me.
The stark reality was that my super was not going to be enough.
I often wonder what hope do some people have on a small income with less super contributions. I was not going to have enough money to provide the lifestyle in retirement that I wanted. The best-case scenario for my then current situation was modest and unacceptable!
This turned my thoughts into other ways to make money. Instead of property investment, I decided to invest in the share market. Well with 12 months of buy this, sell that and hold into other stocks, I was back to where I started. Not only was I spending far too long in front of my computer, but also my biggest loss happened while I was at work and I could not do a thing about it! (Not something that I could see happening with a property investment).
I am not saying that you can’t make money out of what I was trying to do, but it just was not for me. There had to be an easier way.
At the time there were a few popular schemes going on like movie making, tree plantations and even Ostriches.
Then I started to notice that some family friends had made in-roads to their own property investment. This really made me think. I wondered how they did it given I was on a better income than they were and I wasn’t doing it? It made me curious and quite by chance I stumbled into finding out more.
My parents knew of a property being sold by friends of friends and suggested I think about buying it. I also knew there was a genuine reason for the sale.
If I was ever to make a property investment I wanted it about 8-10km from the Brisbane CDB and in an area I new well. However with no real intention of buying I chatted to the real estate agent, had a casual look around and had the house checked out.
The house was a good quality structurally sound building with no white ants. It was close to a school, the bus stop, doctors, a convenience store and park. While the area was not up market I could see the surrounding areas were taking off and thought it only has to be a matter of time and that prices there would also start to go up.
The asking price then was in the lower end of the market for that area. It didn’t have a view and it really wasn’t what I was used to but I thought if worst came to worst I could live there. I am not quite sure why I thought that but figured if I would live in it then some body else would too. I talked about it with my family and my gut instinct was to get out of my comfort zone and just buy this house.
Whilst I didn’t know a lot about property investment or investing per-se, I did know that if I ever wanted to achieve my retirement goals I needed to invest sooner rather than later. I was 36 and had put off this decision for way too long.
I checked with the real estate agent about rental returns. I thought his forecast was a little high so I trusted my own conservative opinion and worked with slightly lower figures. Even with these lower figures I believed it would still be ok, so I bought the house.
In the end I got a 6-month lease to a family with 3 kids and a dog with the rent ending up being $15 a week lower than what the agent had suggested. This was alright because I thought that if the dog causes trouble then I would have the option of discontinuing the lease. I had negotiated that they maintain the lawns and gardens in good shape for the rent reduction.
As it has turned out they are excellent tenants who look after my 'very first property investment' really well and the dog is your average family pet that has not so much as dug a bone hole in the yard.
Having now bought my first property investment I kick myself even harder for not having done it earlier. I would like to say that I think I experienced every emotion under the sun before I bought it.
Some of my fears were to firstly step out of my comfort zone and followed by:
• Overcoming the fear of ‘tenants from hell stories’. I tackled this concern by using a professional property manager who was able to check
the history of all tenant applications and then manage the property.
• I had visions of my property burning down and being trashed etc. I hit this on the head with insurances that covered just about everything including personal income insurance in case I can’t work through accident or injury.
• Having been made redundant in the past, job security was another worry. However the reality is you cannot control this. If it does happen you will need to look for another job or in the worst-case scenario you sell the investment. With capital growth of the asset, if you had to sell there should be enough money to cover the expenses and pocket the rest.
During that riskiest time of initial growth my attitude was damned if I do and damned if I don’t. I just knew that if I didn’t invest then I was not giving myself any chance of financial freedom.
• I was worried about maintenance on the house. However knowing I had bought a property in good condition and by using a property manager who will inspect the house at regular intervals I am comfortable in the knowledge that maintaining my property will not be a problem.
• Interest rates are always a worry. However I have worked with increased figures and this being a tax deduction is no longer such a great concern. When I thought about it, the property market had continued to grow in all interest rate environments for as long as I can remember.
Changing interest rates are a part of life. In the long term, investing is not just about investment rates. It’s about what you get in exchange for those rates. I know in the past my fear of interest rates plus other excuses has cost me dearly.
• Rental return was not so much a concern as much as could I rent it. Renting it proved to be no problem through the adjusted rent of $10 per week to what I think should have been the original asking price. This is only $520 a year to have what has turned out to be a great tenant. Even then this extra cost turns out to be tax deductible anyway.
As a first time property investor, Tom has asked me to include any bits that I have discovered or things that I have since learnt about investing in property that would possibly help new investors reading my story.
I’ve got to say there has not yet been anything negative apart from not doing this year’s ago. I know everybody has got an opinion on property and investment. I know from my own perspective that a lot of it is governed by fear.
Even now common sense says I should invest again because I have done well so far but I still find myself asking, have I missed the boat.
Logically I should let the figures do the talking and what I have learnt from other successful property investors is that they seemed to invest when they can afford to rather than trying to pick the right time in the market.
I guess it is about buying on the fundamentals of a well-located property that will always be in demand and has proved to be the safest way to go.
Yes I had shares and still do have some in quality companies only. They have been in the wilderness for some years now but are slowly making there way back. I decided to keep them as emergency funds. I could probably keep emergency funds in my offset facility attached to my home loan though and be just as well off working on the theory that interest saved is better than interest earned.
I borrowed the whole purchase price but put cash in for the borrowing costs. I have since learnt that I possibly should have borrowed those costs as well as they are tax deductible. I would have then placed the cash that I used for the cost of stamp duty etc in my offset facility on my non-deductible home loan mortgage.
While I didn’t know what I was really doing in the first place, now that I have done it, life really does go on as normal. I find myself slipping into a bit of a comfort zone again and I know that my investment head is saying that I have to step out again and go buy another property.
I haven’t really had a mentor but find myself surrounded by a few close family friends who own quite a number of properties. What made it even more encouraging for me was that these people didn’t have an income like I have and now, I knew how they could legitimately do what they were doing and so could I.
A proven mentor by my side a long time ago would have been invaluable. Firstly to get me out of my comfort zone and into property earlier but by associating with them from time to time now they have suggested little things like using a specialist property accountant who knows about all the tax deductible items, or that a Form 1515 gives me a tax deduction every time I get paid and the need to have a Quantity Surveyor prepare a depreciation schedule to make sure I claim every thing I possibly can for my tax return.
I mean until just recently I didn’t know this and where do you find out about this. Anyway I guess there will always be more to learn about property.
My lifestyle has been affected a bit from what I am used to simply because I now know that I have to make up for lost time. Operating with sensible buying habits and cutting out consumerable debt is a small sacrifice for the financial gain that I can now see and know that I have to obtain for the retirement that I want.
My retirement goals are to be able to pay my bills without stress. To eat out and share things with family and friends that by chance might cost money without worrying about the cost. (Something that I see pension holders unfortunately are very often unable to do simply because of a lack of finances.) To be able to take an overseas trip every second year and a new car (or near new) every 7 to 10 years.
I know that this will require about 6 properties bought as soon as I can afford them and a time frame through to retirement of 55 of just 20 years. This I think should give me about 3 cycles of the property market.
Depending then on the actual gains received I will know if I will have to sell one or two to pay of debt and maybe even sell as I need it as I get older. I know accuracy of my goals is variable but at the very least I see myself as having a lot more choices by having property at retirement than having no property.
Summing up I would like to say that property investment can be exciting if not a little nerve racking especially for the first one. It can give you a lot of personal satisfaction in not only making the decision but also in being a land lord who has an asset that is going up in value.
Property investment has proved to be an excellent vehicle for my retirement fund over time and it seems it will continue to be.
I know that with out a plan there is absolutely no financial future and that the earlier you can start accumulating your property investment portfolio, it will save you having to play catch up at a later date like I am finding that I have to do now!
I now that the hardest part about property investment is getting out of your comfort zone and that owning a good property investment is exciting as well as comforting. Doing it right is like anything and learned through knowledge and practice.
I think Mike’s story will relate to many people because I hear and see much of it with many people almost on a daily basis. The one thing that does vary wildly though is the age of similar case stories.
As Mike has said, it only took him 36 years to take that first step. For others it might be 46 or 26 years. The benefit of starting our property investment life as early as we can allows the magic of compounding to pay us back enormously for the discipline of doing so.
Mike now sees himself in catch up mode so as to achieve the investments required to fund his comfortable retirement goals.
Mike approached his budget situation in a different way to most. While the “experts” would suggest that you pay yourself first when budgeting your money, Mike found it better to identify his expenses over time and then pay off his greatest costs to realize surplus money.
It doesn’t matter how you do it in the end so long as you find a way that will give you the money needed for investment.
The emotions that you face during the process of investment, especially that first investment, are not new. I think Mike has captured a lot of what I even went through and most probably what you will face as you start your investment journey.
Now that the first one is out of the way, I feel sure that the next one will not cause quite the concern with the negative possibilities and will enable more focus on building his portfolio using investment variables that he can control.
One good point to recognize is that investment is not just about now. Property investment happens every day of the year, every year. Investment, particularly in property, is a good buy and hold asset because as soon as you sell it (at a cost), it will cost more to buy back in.
It should be remember too that property investment is about building a portfolio of bricks and mortar assets for when you no longer work, not for cashing in for consumerable lifestyles when you don’t really have to.
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