API Connect

Learning from mistakes, land tax...

Learning from mistakes

Q I found your article enlightening and as a beginner very much how I see my future investment strategy. You said you made mistakes – what were they and how did that impact on your business?

A Don't be quick to put just any tenant in – do your homework. As we said in the issue published, you need to be honest and fair to your tenants; they are your bread and butter.

Everyone is different and there are many property investing strategies in the marketplace so what was a mistake for me might not be a mistake for others. Hindsight is a wonderful teacher and because of this I have realised that sticking to the basic strategy is best.

I will list the mistakes in order and they include:

1. Deviating from the basic strategy, which was to find a patch close to home and buy a block of land with a house on it that would rent out in good times and in bad.
2. Buying land and not house and land.
3. Buying when we knew that the property cycle was near its peak.
4. Buying “off the plan” at the wrong time in the property cycle.
5. Buying serviced apartments, “off the plan”.
6. Trying to do a small development (two houses on a large block of land) to make cash.
7. Not locking away the first 10 cheapies. At this stage, not refinanced them to purchase more property, I should have locked them in and become more creative instead.
8. Complicating the purchasing and financing side by buying in a company when I started out. – Dave

Land tax

Q What strategies do you suggest to reduce land tax? How important was the cash flow from your food business in funding your property cash shortfall?

A The land tax issue was quite easy for me because very early on I worked out that I could buy four or five cheapies in my own name and still be under the land tax threshold. With pretty good rent return and no strata levies on house and land, the land tax was minimal. I left the numbers to my accountant and paid for it from part of the refinancing money (capital growth).

Regarding the shortfall issue, in the early days there simply wasn’t that much shortfall because of the low interest rates and the high rental income so I didn’t have to use funds from the business. When prices increased I soon realised that it’s capital growth that makes you wealthy and not rent return so when I refinanced I simply put some of the funds to one side to cover one year of shortfall and invested what was left to help purchase another property.

As time has progressed I have learned that the key to success is to learn to buy right (buy wholesale, fix-up and refinance at retail). The best way to do this is to hire experts and learn from them. – Dave