Client Interview - 3 Properties @ 21

When did you buy your first investment property?

I purchased my first property at 19 years of age. It was a 2 bedroom brick unit in Newham, Tasmania located very close to the University and Maritime College. I did a little research first and found there was a shortage of student accommodation in the area which leads to a strong demand. It was important to me that the property had a high occupancy rate. The unit was relatively modern and required little maintenance. I could see all it needed was a coat of paint and some minor updates over time.

How did you raise the deposit on an average income?

I took advantage of the first home owners grant to help with the deposit and lived in the unit for about 6-8 months in accordance with the guidelines. My intention was always to use the property as an investment.

Why did you decide to invest in residential real estate?

I invested in real estate simply because the thought of paying rent when I had the opportunity to buy with a little help from the government grant seemed crazy, why would I pay for someone else’s investment when I could be paying for something that I owned... After purchasing my first property I was very excited and felt a strong sense of pride and empowerment, I realised it wasn’t that hard, it got me thinking about property investment for the long term and how I could use the equity as leverage and continue to invest in my future.

What are your investment strategies and goals?

I started researching and reading about property investment. I knew I had to educate myself and learn a few key elements of investing including the different types of property investment, tips, traps and stats. For my situation it was about the location, the demand and the immediate cash flow/return on investment. It was important that the income covered as much of the expense as possible as I was only on an average income at the time and certainly had no real tax issues! I had a long way to go before I considered negative gearing as an option!

How long after the first property did you buy the second?

After a lot of research it was time to keep an eye on the market and seek out opportunities that would meet my criteria. A year or so later I purchased my second property, an older weather board house in Waverly Tasmania which was a little run down but the price was right and the work required was mainly cosmetic and most of it I could do myself with a little help from friends.

What are your future plans with investing

My main objective is to use property as a tool to grow long term wealth and create some passive income and with a bit of luck retire at an earlier age. My current strategy is to purchase as many homes as I can before turning 25 and eventually look into larger projects such as developing and renovating old homes. I have a real passion for real estate and I try and surround myself with like minded people that can help me achieve my goals.

What is the biggest mistake you have made?

My lesson learnt and biggest mistake was thinking I could manage the properties myself. I now know to leave the management of the property and the tenant selection to the experts. I thought by managing the properties myself I could save a lot of money. I rented the unit to some friends and realised what a big mistake this was when they stopped paying rent, left early and damaged the property. I remember considering my options in the early days and my “now property manager” Michelle from @home property trying to warn me as she explained that a good property manager should not cost you a cent when you consider all of the variables in income and expenses such as vacancy, rent arrears, negotiating rent reviews and ensuring the tenants selected are carefully monitored during the tenancy with regular inspections. In addition there is the risk management to consider not to mention the ever changing legislation requirements. My advice is to find the best and most experienced property manager in your area and pay them what they are worth! After all, the fees are tax deductable, your sanity is not!

Do you worry about the expenses?

Because I carefully researched the potential returns I knew that the rent would cover the repayments at the very least. I admit that I have put a lot of time in after hours doing as much of the maintenance as I can myself to reduce the costs.

What is the best investment you have made so far?

Firstly the investment I have made in educating myself through books and investment magazines. Secondly the investment I have made in my property manager Michelle, she allows me to focus on my goals while she does the hard work. I now consider my investments a business rather than a hobby and with the right advice from my mentors I will continue to grow my business and achieve my goals.

Congratulation Steve, you are an inspiration for young investors who think investing in property is only for the wealthy, you have shown that anyone can do it as long as they have the vision and persistance. We wish you every success for the future.

Interview by Michelle Williams with Stephen Gall, current client aged 21.