API Connect

June 2009 issue

Investors who have been featured in API answer questions from readers.
For more Q&As, see this month’s API magazine.

Rural investment

Q I enjoyed reading the article on John and Marg Turner as it's a similar story to my own. My wife and I have a dairy farm business as well as residential investments, plus one industrial investment - and yes, it's hard work!

I would have been interested to know what they paid for their farmland and what growth was achieved on this over time and what was it able to be sold for?

I'm not really familiar with the Shepparton area but I do know there are a lot of problems there with irrigation etc.

My farm is near Camperdown in southwestern Victoria and I would say it has been my most successful investment to date.

A If you don't mind I will give you figures as a percentage as the actual figures aren't really relevant.

Over the years from 1985 until 1993 we purchased a total of four small farms. We sold up in 2005 with an average increase of five per cent annually for the time we held them. Our cattle, being a tangible asset, increased by zero per cent.

There are a couple of things to consider here for anyone who is a business owner and has a tangible asset or one who holds rural property. Firstly, a good median house in an average capital growth area historically increases eight to 10 per cent or higher annually, compared to rural and other commercial investments which can fluctuate sporadically making them more risky.

The other more important consideration is that as houses are seen as less risky than many other forms of investment, lenders allow you to borrow more against them to invest (approx 80 per cent or more) compared to rural (average 50 per cent), thus making your equity work much harder for you. Added to this, there are many other capital assets on a farm such as stock, plant and equipment unencumbered, that you can't borrow against for investment.

When I sat down one day and did the calculation on what we were sitting on (unusable equity) the figures were staggering. That was the day we put our farm on the market. - Marg Turner

Leverage

Q Marg, as a businessperson, how did organise your finance for maximum leverage? Who did you go through?

A I worked with a broker who understood property investment and also invested in properties herself. Since then, together, we have decided to start up our own finance company to help others succeed in property investing. - Marg Turner