I was 21 when I first signed a contract of sale to purchase a property and, looking back, it was a very heady experience. I was still an undergraduate student in my honours year of a chemistry degree. I’d saved hard for years and I had a permanent part-time job in a supermarket deli at night time and weekends, so the double- and triple-time pay rates helped me save a good deposit.
I had been intent on buying my first home as a priority. That sheer determination wasn’t about shelter; I always felt a drive to build wealth and make good financial decisions. Looking back, I made a lot of mistakes, but as I now tell others in a professional capacity, “Property can be a forgiving asset class over time.” The most valuable thing I did for myself was enter the property market at a young age.
The first mistake I made was asking a trusted professional for advice and ignoring it. We had a family friend, Bruce, who talked to me about the elements to look for, and the best options to consider with my $120,000 budget. Bruce was a local real estate agent whose children went to my school and whose wife had babysat us as kids. He always had good advice and was a wonderful support. Instead of taking his advice and buying something older in a great location, though, I followed my dad’s advice and bought something off-the-plan. My dad’s concern was about maintenance issues and my limited ability to deal with upgrades or fixes if they were needed.
I let a great property go because it was slightly over my preferred budget. An older 50’s house in a fantastic location had caught my eye and I managed to negotiate verbally to $132,000. My father was worried I’d overstretch myself at that level and recommended I cool off. Ultimately, the property I bought was $155,000. The first mistake I made was underestimating my ability to increase my salary over time. I see so many conservative, young purchasers who preclude good options despite their ability to service the debt on their current income.
My deposit was substantial so I didn’t need Lenders Mortgage Insurance. It was an option available to borrowers at that time, but 20% deposits were still a mainstream consideration back in the 90s.
The property took over 20 months to be completed from the date of signing, and like many off-the-plan purchases, the design was adjusted during the planning phase. It was exciting to watch the construction and to pick the fixtures and colours, but the critical mistake I made was buying brand new. Land-to-asset ratio is a really important consideration when it comes to capital growth prospects, and my first purchase failed to capitalise on this.
I sold the property and upgraded to a house on a full block within less than a year of moving in. While the next purchase was a better capital growth performer, had I held onto the original property and used the equity, I’d have increased my financial position a lot faster.
There is merit in seeking advice and I wish I had a good mortgage broker at the time to show me what could have been possible.
Cate Bakos is Founder of Cate Bakos Property, a boutique and independent Melbourne buyers agency firm. She is a co-host of the podcast series The Property Planner, Buyer and Professor and also runs an inhouse podcast called The Property Diaries.
I was 21 when I bought my first property back in 1991 with my boyfriend at the time. I worked a second job for two years – usually five to seven shifts a week at night – to pull together my share of the deposit. My half was about $20,000. I don’t know if I would have been able to get onto the property ladder that young if I hadn’t gone halfies with my boyfriend.
The house we bought was in West Pymble in NSW. We chose it because it was so close to work – it was literally 150 metres from the office where I was working at the time. The problem? It was on a six-lane highway.
I did no due diligence – no building inspection and no pest inspection, I didn’t even know how to do those things. I didn’t even give the main road noise issue a second thought. In my defence, the real estate agent walked me through the back of the property so looking back I can see how I got fooled.
We realised our mistake as soon as we moved in. On that first night we literally looked at each other and said “What have we done?”. There were trucks driving by at all hours of the day and night. We couldn’t sleep. We knew we had to get out.
We painted the house internally, ripped up the carpet and left the floorboards raw and did a massive clean-up in the front garden and in the rear backyard. We had no budget for tradies so did it all ourselves, and six months later we sold it.
We covered all our resale costs and managed to make a small profit even though our first property purchase was a complete dud! I often refer to myself as the accidental renovator; I kickstarted my renovating career by accident as a result of that first dud deal.
We then bought another house in the same suburb which we spent eight years renovating and made a decent profit on that too. My third property was the first reno that I did in a more systematic and professional way. Some 30 years later, I’m now onto project 143.
There are a few lessons I have learnt along the way. These include:
- Location is important but that doesn’t mean you have to buy in the best suburb. For me, it means making sure the property is well located in the suburb you’re buying in. So, avoid buying on a busy road as there will always be a cap to how much you can make from the property. Look for a nice, quiet suburban street. If you’re buying as an investment – if it’s not something you’d be prepared to live in, really question whether you should buy the property to begin with.
- Do thorough property due diligence. At a bare minimum, get a building, pest, asbestos and CCTV plumbing inspection. These types of inspections can identify issues such as cracked pipes from tree roots under your home that could come as big cost items to fix and can save you a lot of money in the long run.
- Unrenovated properties can be a great option. In most cases, they will be more affordable which is ideal for those trying to get into the market or those struggling with housing affordability. There is also an opportunity to add value to the property rather than waiting for organic capital growth. You don’t have to do the renovations straight away – you can wait until time and your budget allows you to.
In 1993, at age 22, I was earning £10,000 as an accountant and was lucky enough to have a £10,000 deposit from an inheritance. In those days, you could borrow three times your income and so all I could afford was a tatty one-bedroom unit in the worst part of town. The mortgage would have taken all my income, leaving me nothing for entertainment, which is why none of my friends had bought.
I continued my search and fell in love with a three-bedroom house that cost £100,000 and was right in the heart of the action – the ultimate bachelor pad. Being good with numbers, I worked out that if I could rent two rooms out to mates, I could actually live for free as the rent would cover the whole of my mortgage.
So, I pitched it to my dad – I wasn’t after a handout, but if he could guarantee the mortgage with the bank for the first few years, then surely this was a much better financial decision. Luckily for me, he backed me.
I ended up buying the property for £80,000 as the seller was motivated to buy his dream home next door, making me two years’ salary overnight. I rented the rooms out and paid my younger brother to sand and polish the floors.
Two years later I read an advertisement from a bank that said you could use your equity to pay for a kitchen renovation or car loan. I rang the bank and asked for £5,000 for a car, but they said there was a £15,000 minimum and I had to prove what I was spending the money on.
I then went to the local Porsche dealer and picked up an eight-year-old bright red convertible 911. They were about £50,000 brand new, but only £15,000 second-hand once depreciated. I couldn’t afford a £15,000 car loan but I could if it was added to my mortgage.
Some might say that is bad debt – which it is. If I had sold the house, paid off the mortgage and bought a car with the proceeds some might say that’s okay as I’m spending my profit. However, I had a £120,000 house with a £85,000 mortgage (£70,000 + £15,000) and so I still had £35,000 equity and I still owned a property which would continue to rise. That property is now worth about £600,000.
These were my learnings:
- Invest at the earliest age as possible.
- Push yourself to buy as much as you can within reason.
- Buy blue-chip as it’s less likely to fall and easier to rent out.
- Celebrate your wins.
- Pull out the equity to buy more property and keep repeating
Chris Gray is CEO of Your Empire, a buyers’ agency which builds property portfolios for time-poor people. Chris is a qualified accountant, buyers’ agent and mortgage broker.
I bought my first property in November 1999 for $199,940 when I was 24. Being a Perth boy, I purchased a three-bedroom apartment in the fringe Perth CBD suburb of Victoria Park. I bought it in partnership with an experienced property investment mentor I had at the time. I was really fortunate that he was keen to support me to get on to the property ladder and, whilst I didn’t have a deposit, he provided the equity to secure the loan for us to buy the property together.
I wish I could say that I had spent hours researching the type of property and the location extensively, but the truth is that I was very green and was only focused on one thing – getting my name on a title… and it didn’t matter which one!
I was very clear on the ‘why’ I should be buying this property as I was totally focused (perhaps obsessed!) on building a portfolio of investment properties, but I could’ve done more research on the ‘what’ to buy.
This purchase worked out fine, however, I would not advise anyone to buy medium/high density property like I did. The median house price in Perth was $158,000 in 1999 and if I had my time over again, I would’ve definitely bought a house. That said though, I still to this day consider it the best purchase I’ve ever made (despite its sub-par financial performance) because it got me started and became the catalyst to multiple property investment purchases since. Not many people buy an investment property in the first place, so I’m grateful that this property kickstarted my investment mindset in my twenties.
I learned a few lessons with that property:
- Investing in real life is different to investing on a spreadsheet. Not all properties perform the same so asset selection is critical.
- Avoid medium/high density property. This was one of 100-plus properties with a pool, caretaker and a lift, meaning it had high body corporate fees and low owner-occupier appeal.
- When you are co-borrower on a loan you have joint and several liability which means you get 50% of the benefit but you’re responsible for 100% of the loan.
Bryce Holdaway is co-host of The Property Couch podcast, co-host of Location Escape from the City on ABC and Location Location Australia on Foxtel’s The Lifestyle Channel and partner of Empower Wealth.
In 2000 at the ripe age of 30 my partner Todd (now my husband), and I started down a path of understanding how to invest in property strategically. We attended many two-hour free workshops and read literally hundreds of books.
As an explosives engineer, I dealt with risk every day so it made sense I use my skills to apply that knowledge to property investing so I could protect my small nest egg. Subsequently, Todd attended a property investing conference and came back with a brain full of ideas. We distilled the fundamentals from the ra-ra, and it all came down to having a goal, coming up with a strategy to achieve that goal and doing the work to reach the goal with a determined focus (which included heaps of research).
I had a miserly $45,000, and after stamp duty was taken from this amount, I was left with a 5% deposit for a $425,000 purchase of a house built in1860 in Carlton. I knew that to get ahead faster I could not just wait for the average growth rate, I needed an area with demand and I needed to make money out of thin air – which I did with a renovation. I took a personal loan of $50,000, did a strategic renovation and the property was revalued nine months later at $700,000. I then refinanced to an 80% loan-to-value ratio and then went and repeated this strategy in Sydney. Rinse and Repeat.
The key was the research to find the growth area, then the research to find an area where the difference between unrenovated and the renovated property values allowed me to buy so that I could cover all the costs and make $2 for every $1 of the funds spent on the renovation. Just for good measure, it didn’t hurt to be able to buy below the market value by being able to understand what was happening in the market and recognising a good opportunity when it turned up. This essentially gave me three ways to make money on one purchase – becoming my Trid3nt Strategy. I have since replicated this many times over and have taught it to tens of thousands of Aussies (and the odd Kiwi).
That first property was orchestrated to be a strategic purchase that became the cornerstone to my portfolio and allows me to have the freedom to do what I want, when I want, with who I want. I am sure you would agree that is the ultimate goal for most of us.
Jane Slack-Smith is the Director of Investors Choice Mortgages and Founder of Your Property Success. She is also co-host of the podcast Your Property Success and The First Home Buyers Show and Borrow My Brain.
Cover image source: Andy Dean Photography /Shutterstock.com
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