Property Investment Stems from A Dream, Determination and Savings Commitment - (Vanessa & Derrick, SYDNEY)

Property Investment Profile

My name is Vanessa and I’m 33 years old. I am married, now earn an average income and currently own 3 great pieces of real estate(with my husband and the bank!).

My story begins in 1996 when I purchased my first home, with my then fiancé, in Moonee Ponds.

We got our deposit together and borrowed to our limit to purchase a fully renovated, 3 bedroom federation style home for $250,000. Like most young couples, we purchased with our hearts and the focus was more on paying off our own home, and over time, hopefully creating financial security for the future (in hindsight – the hard way!).

Things do not always go to plan and what was originally a long term property investment was to be short-lived after the relationship broke up 18 months later.

We sold the home for $333,000 and split the profit equally. Two years later (January 2000), in the year of my 30th birthday, I took stock of my life – where was I going?

Since my early 20’s, my goal was to have my name on a property title by the time I was thirty – just around the corner. I had about $15,000 as a deposit and was very single and independent.

I decided that now was the time to realise my dream and was quite happy to be doing it alone.

The choice of which property investment I was to purchase happened quite by chance when a friend and I were driving past a new development on our way home from a café one afternoon. We stopped and read the sales board description of the proposed development (it was currently a vacant block) and I had a strong feeling that this was the one.

Everything happened so quickly.

I called the agent and made an appointment to see the display that had been built at the location. It was perfect! Not only did I love the design, it was in the inner city suburb of Brunswick, so I knew it would increase in value. I had learnt a bit about what constitutes a good property investment, from my good friend Tom and this time my decision was made using my head and not my heart.

A three bedroom townhouse for $295,000, for a single girl on her own (earning at the time $50,000 pa), was almost out of reach but I was determined to do it somehow. I paid a holding deposit that day for $1,000 and chose the lot I wanted.

Buying off the plan gave me the break I needed as my savings (totalling $15,000), would only provide me with half the deposit. The agent would accept my 5% and allow the other 5% to be paid on completion of building at settlement time (approx 10 months later).

The property investment loan was approved and I budgeted to save the other $15,000 over ten months. It was pretty tough and I sacrificed a few things to get there but it was well worth it as you will find out later in the story.

My intention for this property was to rent it out for a few years so tenants could help me with the mortgage payments and I would eventually move in. This was the most practical option as it would give me great depreciation tax deductions at tax time to help with the mortgage payments.

I deliberately lived in a very comfortable but very modest apartment that I was happy to call home for the short term to keep my own rent as low as possible. This enabled me to continue my savings focus with determination to achieve my property investment dream.

The building of the development took a lot longer than expected but because I didn’t have the pressure of needing to move in myself, the extra time did not pose a problem.

It took the financial pressure off and due to the increase in value of properties over that 2.5 year period (yes, 10 months turned out to be close to 2.5 years!); the value of property at completion was $395,000!

This meant that I had $100,000 equity in the property with a $15,000 initial investment.

Due to this equity, I did not have to contribute another $15,000 (as originally anticipated) and I also avoided mortgage insurance. Do you think I was a little excited about this property investment!

I couldn’t believe my good fortune. No other investment would have given me that return. The best news is that I had purchased the property with a rental guarantee, so the first month without tenants was reimbursed to me and the monthly rent received is now covering the mortgage payment.

About half way through the construction of the property, the unexpected happened - I met the love of my life. I knew with the first look that I would spend the rest of my life with this man. I moved to his home town of Sydney (June 2001) and we moved in together in September of that year.

In January 2002, just prior to our engagement, an opportunity to purchase another property investment off the plan in Brisbane was presented to us.

As I had the Brunswick townhouse that was still not settled at this stage, it was a perfect opportunity for Derrick to use his savings for this investment. At this stage he did not have any tax breaks and was paying 49% tax. Once again, buying off the plan allowed time for capital growth prior to settlement and being in the inner city suburb of Paddington was a wise choice.

Things were going fantastically; both our properties were in different stages of development, so we decided to buy a home together.

My savings that were not needed for the Brunswick property investment, combined with a redundancy payout from my job, provided half the deposit for our joint venture. Derrick had savings to make up the other half and we bought a 3 bedroom townhouse in the Northern beaches in Sydney for $513,000.

Derrick found the ad on the internet and was selling off the plan. We found it when it was ¾ finished and made an offer. We had 20% for the deposit so we could avoid the cost of mortgage insurance which would have added an extra $12,000.

This property settled in (June 2002) and we decided to rent it out as a dedicated property investment for two years with the view to moving in ourselves. Once again, luck was on our side with tenants moving in on settlement date.

It was to be a busy and sometimes stressful 12 months. Even though all properties were purchased at well spaced intervals, due to different building timelines, we were to settle all properties within a 12 month period.

There were a number of times when I wondered why I was doing this but a gentle reminder to look at the big picture and remember how the system works from Tom reinforced my focus. Now that big picture is fantastic. Property investment really is a do-able thing because here I was actually doing it!

However, one of the dangers of buying off the plan was that the end product is not always what has been promised at sale time. Like the frameless shower screens that ended up being semi-frameless. A very big difference in value and quality.

Also the ‘walk in’ wardrobe that was built as a ‘crawl in’ wardrobe due to a design fault and only discovered at the last minute. Both problems have now been rectified. It took a lot of energy but was well worth it and it I know it would have been much more difficult without the support of my husband.

Short term pain for long term gain sums up the difficult periods.

There are far more positives to my story than negatives and far more detail than I could condense into this overview. If I had listened to all the people who told me I was mad and I should sell up and put the money into shares, I would have lost a fortune!

Every-one is an expert and in reality, more often than not, it is no more than what they read in the newspaper that day.

Our financial gain is by far the most significant and pleasing gain of coarse but I and now we know that we are doing something positive for our long-term financial future and security into our retirement through property investment. Our properties have collectively increased in value by $180,000 plus.

Although I have expressed ‘luck’ as a contributing factor to successfully finding tenants and making capital growth, the quality and location of each property has really been the key. We will continue to secure our financial future through property.

In a couple of years when we have built more equity in our primary residence we will buy again, and thanks to Tom’s assistance, have gained enough knowledge to feel confident that we are making wise choices and not hoping for a lucky shot in the dark. Thanks Tom!

Vanessa & Derrick

Toms comment

After she had paid her deposit for her first property I remember Vanessa telling me about what she had to do to achieve her financial commitment.

She set about adjusting her lifestyle and savings habits with gusto. At the time she put herself in a situation that gave her no other option really. Initial property investment can be like that.

Anything that was a financial liability was deleted or radically adjusted.

Coming from her own beautiful home, her new-shared accommodation, while providing everything she needed, could best be described as modest. Her lifestyle became less coffee and more couch in many areas because it saved so much money for her!

Even the beloved motorbike and the dreams of a bigger bike had to go.

Talk about a dream, determination and a savings commitment that has payed off.

The getting married bit came out of the blue, but as is the case, Derrick had the same sort of goals and together they have done remarkably well in a short space of time. (Again, the right property investment can do that!)

This was due in part I think to quickly realising how they could achieve their investment goals, doing their homework and making a decision!

I do know that their ability to capitalise on a financial opportunity has paid some pretty good dividends to date and their knowledge gained has given them the confidence to be able to make the decisions they have.

I have seen luck play a big role in many investors’ lives as Vanessa pointed out, but purchasing quality property in a quality location is a criterion that they had control over and it has served them very well to date.

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