Real Estate, Investment... Property Investment Evolution - (Robert and Mon - BRISBANE)

Continued...

Real estate and investment. Our focus in life has always been to provide for our own comfortable retirement. As employees we were working in the traditional way towards a government forced super and possible government pension.

Previous family member successes in property investment however turned our attention and direction towards real estate.

Our involvement with it began when we purchased our own home in the late 1980’s. A chain of events stimulated our drive for self-education about property investment. We were also keen to learn from as many people as we could along the way.

A business career transfer to Asia provided the opportunity to understand different lifestyles of locals and expatriates. The varying degrees of comparison in living for today and investing for tomorrow were clearly evident. This had a bearing on our perception of value that was looked upon in many different ways.

Politics and the extremely different tax structures in the region also provided valuable thoughts for our future endeavors. Based upon our research, reading numerous books, magazines and newspaper articles looked upon real estate as providing us with a solid foundation for future prosperity and security.

Stock trading investment was a concern, with our money or money borrowed on our security that would be managed by someone else or a board of directors that could use our investment at their discretion. Recent company closures and turmoil has certainly supported that.

That is where we had to evaluate the value ratio of risk and reward. We decided that real estate would provide the reward with less risk.

Many people we had spoken to or had read about had realized very rewarding returns with fantastic capital gains in real estate. We thought that the best way for us to achieve some of that capital growth would be to use the very in vogue principle at the time of other peoples money; (OPM).

This enabled us to leverage our money using tax effective borrowing principles to be a part of that capital gain. Knowing that capital growth fluctuated over time, we felt that using this principle was best even though the short term capital growth situation would go through its flat periods.

Being in the market we at least would then the working towards something that proved to be very positive in the longer term.

You will see from our first real estate purchase that this was the case as our path in real estate education started. Our first goal, like with so many couples was to reach that almighty deposit sum that was vitally important for their first real estate purchase. That sum was achieved in the late eighties with interest rates at eighteen per cent.

Irrespective of the interest rates our savings goal had been achieved. As to whether the interest rates would go any further or not was unknown.

The next step was to go looking. It was one very simple line of information that only one real estate agent expressed in all of the sites that we visited. When leaving an apartment the agent mentioned that it was only eleven kilometers to the central post office. The apartment was in a block of four. It was well located being just a few streets from the main road which would be good for commuting and it was also just around the corner from a suburban street shopping centre. We purchased and moved in!

Six months later an overseas transfer opportunity came through.

Our residence was to become our first investment.

We moved overseas and the tenants moved in. The overseas factors mentioned before came into play. We were to learn so much from our move. Real estate investment appeared to be a hot topic with information free flowing now as we had a greater interest in preserving what we had and moving ahead.

While overseas, my wife returned to Melbourne to visit the family and with the very clear objective to find another investment property.

Well, it was achieved however the family visit was more like a real estate mission in taking up ninety per cent of the home leave time. Wow, what a sacrifice. We had invested heavily with our time and progressed with our information gathering and investment education. While the process was easy there were lots of things to learn. We had also saved really hard for another deposit. The tax saving component overseas provided added incentive to save for that deposit.

We returned home to Sydney the following year and elected to rent rather than move into one of our investment units. While renting we were looking for our next residence. The investment units were looking after themselves with the tenants rent coupled with our tax returns.

We finally found our next residence, well my wife did. I was overseas on business at the time. The wonders of modern communication came into play with my wife faxing a summary of the properties she had seen along with the plans. She had pointed out one in particular that she put at the top of the list. A decision to purchase was made over the phone and the real estate agent was advised accordingly. I returned on the Sunday to view our new residence.

We were always thinking about what we would do next and ways to get ahead. With the mortgage payments being made on the residence, the interest component began to be a bit of a concern due to a few challenges life threw at us. We decided to place our first investment unit on the market. We advised our tenants of our plans and discovered they were a little upset at this as they were in the process of completing the building of their new home and the new baby was due in a few months.

We decided to hold off.

The market was going through a plateau in prices as we discovered when we finally did sell with only a four per cent gain. However, it was the tenants rent contribution that was the significant factor in this case in driving the principle down and our equity up. This in turn reduced our monthly mortgage repayments.

The OPM principle was working for us.

This was to provide incentive in due coarse towards the next deposit for another investment unit. We learnt of the great tax advantages in purchasing new investment properties and units. Better still, Victoria provided further incentive with purchases of the plan. We went ahead with our next purchase on a new development that was being managed by the real estate agent we were using in Melbourne. Once again the deposit was made. All went to plan.

It became repetitive with another development the following year. Same scenario; off the plan, deposit down and all was well.

It was getting close to the end of the century and we wanted to be mortgage free with our residence. We placed our second investment unit that we purchased in Melbourne on the market and sold it with a thirty-five percent gain in just over six years. We were now mortgage free. We decided to move interstate from New South Wales to Queensland and rent until we felt comfortable with our decision. The new environment answered our requirements and we were now eager to become entrenched and purchase our new residence. We had been looking for a while until the unexpected happened. Yes, we found a house before we had sold our residence interstate. Well we pondered for a few short days and went on the advice of our agent regarding the sale of our home. Unbeknown to the agent or ourselves the sale took longer than expected therefore we were forced to take out bridging finance to assist us with the purchase of our new abode. Another real estate experience!

Up until this point we had placed monetary deposits on all the properties we had purchased. As time progressed and the realisation that retirement planning was a must do for everybody, seminars, books and magazines were hitting the market with the main topic being real estate and investment opportunities and strategies. We wish that there was as much information around when we first started.

We have never really had any real problems with our properties apart from one minor point of conflict with one of our numerous tenants we’ve had in our investment properties.

We have also managed to select or by chance, get good property managers for our properties also. Any of the usual and expected duties have always been performed with a standard diligence.

Our knowledge broadened further by using the equity in our residence and current investment units to purchase another unit with no deposit. Magic, the OPM principle was expanding further.

We also discovered a further tax incentive known as the 221D form. Once completed, the regular government tax refunds provided further incentive.

Furthermore, the banking industry was becoming very competitive and that stimulated the introduction of new banking products. We elected to consolidate our banking as we had been using different banks with various mortgages over our investment units. We established a, “one hundred per cent off-set account” with one bank. Our income from our employers, the tax incentive from the government via the 221D (now replaced by the L2121 form) and the rent from the units were all channeled in and they in turn were off-set against the interest only mortgage repayments for each unit. There was a cost factor involved however in moving from the different banks with principle and interest mortgages in consolidating with one bank and the interest only mortgages.

We looked upon it as taking a step back in order to move forward in an improved direction.

With the off-set account arrangement in place we found that our bank account balance was essentially increasing under the interest only status. We could determine at any time to deduct any amount off the principle from any of the investment unit mortgages.

We made another investment unit purchase under the same circumstances of the previous unit. We were no longer shy about real estate investment.

Our hard work and determination to learn about investment was paying off even though looking back we made a quite a few mistakes.

We are now looking to purchase a business. The next step in diversifying our portfolio and utilising the power of leverage. In preparation for our business endeavours we sold investment unit number four with a capital growth of sixty per cent in five years. This cash now sits in the off-set account minimising the investment unit mortgage interest repayments until further required.

We are more than satisfied with our real estate investment path to date. While we have made our share of mistakes, we are very happy that we pushed ahead with our investment goals. We have met with some very interesting people that have similar views. We also realize that there are numerous strategies and tactics used by many different people. All of whom have different requirements and perceptions of value.

Some are conservative and some are very ambitious, some even aggressive.

Some real estate portfolios and investments require a little massaging from time to time and ours has also been one of them. It can be looked upon as a game with different strategies aimed at getting the result that you are satisfied with. As time passes, modifications can be made to suit your changing goals. As with the stock market, some people buy and hold. Others buy and sell with the goal to profit. Others like to show their wealth with cars and expensive toys and maybe have the investment success as well.

Good on them we say. They have the choice. We have no specific strategy as such, other than to invest in real estate and gain a better control over our destiny rather than be directed by someone or something else. We have evolved from saving hard for a deposit on more than a few occasions to then being able to invest using just our equity as security.

Capital growth and using OPM has increased our equity in our investment properties. By accessing some of this, it has allowed us to eliminate our residential mortgage.

It has also allowed us to travel afar regularly.

The temptation to purchase a prestige car is there of coarse, however other matters have taken precedence. Our banking habits, procedures and requirements have all changed as well. Information on real estate investing is readily available today through seminars and all forms of media. If you want greater control then real estate will assist, as it has proven over time and certainly in our case to be a solid vehicle in building our wealth!

Having calculated our current salary sacrifice and superannuation provisions we know that it is insufficient to meet our expectations in retirement. However, our investments will now cater for our life in retirement as we have the control over them. The government will control our superannuation and pension allocations which we can now treat as an added extra to our lifestyle, not a must have to live and pay bills. The government is providing the incentive to invest in real estate for employees (see L2121 comments earlier) and others. In some cases banks will provide up to one hundred and ten per cent of the purchase price – the ten per cent catering for the purchase requirements, stamp duty, legal costs etc. The banks lend much less than this for share market investment. What does that tell you?

We have gone from eighteen per cent interest rate repayments to six per cent. Irrespective of the real estate market conditions or that of the finance market whether they be positive or negative we have found that the time to start is always now! We continue to learn and observe with real estate investment. We believe that if there is anything negative, (and there always is), that may count against us then there will always be something positive to counteract.

A good friend of ours believes in the saying ‘think it, do it, live it’!

We have endeavoured to do the same over the years and can only recommend that you apply the same thinking to your own real estate investment endeavours.

Property investment has been a great part of our lives and we have learnt a lot through trial and error and through our own education and experiences. It now gives us a great sense of security and we certainly have no regrets. It has been great!

Robert & Mon.

Toms comment:

Robert and Mon have seen the good times and the not so good times of the property market as it moves through its cycles.

They have certainly by their own admission made their fair share of mistakes and have the odd regret about missed opportunities and the expense of learning from their mistakes. However, Robert has now left his day job and started his own business, some thing that he has long wanted to do. They have had an addition to their family and having seen their magnificent home, I can say that they have no regrets about what property investment has given them and also now enables them to do because of their financial security.

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