Travel inspires investor's epic property journey
Fuelled by a desire to travel the world and be less reliant on paid employment, this Perth-based investor has built an impressive property portfolio based on a focus on affordable real estate and high rental yields.
The motivation to buy, and often sell, 18 homes over the past two decades has largely been motivated by a desire to get away from them.
Avid traveller Stephen Bell has visited around 30 countries and attributes his frenetic property acquisitions to wanting to experience different cultures and utilising property as a means to financial self-sufficiency.
Apart from a couple of forays into the Melbourne market, namely purchases in Ardeer (15km west of the CBD) and coastal Williamstown (11km southwest of CBD), Mr Bell’s sizeable investment portfolio has been built predominantly on metropolitan Perth along with a couple more house purchases in the mining centre of Karratha in WA’s Pilbara region.
Now aged 46 and holding 11 properties with a twelfth under negotiation, the IT consultant reflected on what is usually the most difficult purchase of all – the first one.
“I realised early that I needed to make the most of the benefit of living under my parents’ roof and pushed to buy my first investment in 2000 with the aim of paying that off before I moved out,” he said.
“As it turned out, the rent easily covered the mortgage so I decided to buy a second place, which gave me a small income from each property.
Having graduated from first-home owner to investor, Mr Bell’s initial strategy was to stick to the affordable properties that correlated with his relatively low junior salary.
“Initially I had little option on the price range that I could afford so was only able to buy in suburbs further away from the city or small apartments close to the city.
“As I was able to borrow more, I improved the type of property that I was buying but consciously decided it was better for me to stick to the lower end of the market for two reasons; firstly, I could spread the risk - if a property did not have a tenant then it was only a relatively small mortgage I had to find the money for and there were other rents coming in at that time to help cover it.
“Second reason was that the lower demographics tended to have a higher percentage of renters so it meant the properties were less likely to be vacant for long at the end of a lease.
“Occasionally, I have stepped out of the sub-$350,000 range for a property I felt was undervalued and had a large upside.”
Buying the less expensive areas also turned out to mean lower priced renovations, he said.
“This market was happy with a laminate kitchen bench and didn’t need a marble top in order to attract a tenant, which meant that most of the renovations could have the entire house or apartment done for less than $20,000.”
On the job training
Working in a swimming pool shop, he first floated the idea of renovating properties.
While studying Information Technology and completing a business masters degree he was also progressing from shop assistant to manager before eventually opening his own pool shop.
This was the start of the next phase of his property journey.
“Being in the swimming pool game and always fixing things around the house with my dad was probably what sparked my interest in the more hands-on nature of renovations.
“I eventually ended up in IT, working in support roles initially before navigating to management roles.
“Having a reasonable income certainly helps with getting bank loans, and although I bought my first two places with an income of around $40,000, it’s definitely easier to get loans with a higher income.
“IT jobs took me around Australia to Melbourne and Sydney and also overseas to Samoa.”
Now working again in IT from his home in Perth’s leafy eastern hills suburb of Kalamunda, Mr Bell also spent a couple of years running his own property maintenance business.
“Although this was enjoyable, it was something I enjoyed more for myself in my own renovations than being so structured on timeframes and specific results for others, and I returned to IT again.”
Positive cash flow built around targeted rent yields as high as 9 per cent form the basis of a strategy that has evolved over the years.
Stephen Bell's property journey
(WA unless otherwise stated)
|Heathridge||House 4 x1||Sold|
|Williamstown (VIC)||Apartment 1x1
(converted to a 2x1)
|Ardeer (VIC)||House 3x1||Sold|
|Millars Well, Karratha||House 3x1||Held|
|Bulgarra, Karratha||House 3x1||Held|
“Initially I was sold into the idea of negative gearing to reduce tax but after a couple of years the ‘pay a dollar to get fifty cents back’ philosophy made less sense and I shifted to a strategy that meant properties were at least breaking even from day one.
“Now every property I look at I will put all the relevant figures into a spreadsheet that I have refined over the years and if it doesn’t fit the spreadsheet then I simply won’t buy it.
“Potential for a 10 per cent return on investment (ROI) is usually the primary focus, but it still takes into consideration location, amenities, parking and the demographic of the area.
“Nowadays I consider a range of possibilities to bring a more flexible outcome, which may include student accommodation or longer-term Airbnb, as these provide a way to get a higher rental return.”
“By sticking to a profitable model rather than running at a loss I can continue to buy additional properties each year,” Mr Bell said.
Of the properties that he has sold, all have made a profit.
As with most investors, location is a primary consideration. He took a fairly conservative approach before undertaking more adventurous investments down the track.
“Initially I focused on smaller, cheaper houses or townhouses and apartments close to the Swan River, near shops, transport and not more than six kilometres from the city.
“I’ve always avoided properties that could be hard to rent, finance or resell if necessary but over the years have been more willing to investigate options that are less proven, including near universities or mining regions.
“They all have their own set of risks that need to be considered and significant research is always needed before jumping to a new area or different state.”
‘The Woolworths Indicator’
Familiarity with an area is another central tenet of Mr Bell’s investment blueprint.
The Melbourne and Karratha properties were the result of having spent periods living there and while the vast bulk of his portfolio is built on suburban WA, he is still open to the idea of timing the market to buy regionally, or in Melbourne or other states again.
“With the current increase in prices in WA and drops in the eastern states, I am again keeping an eye on the suburbs I know better in case the right thing pops up and necessitates a weekend trip to view it.”
He has also devised an approach to regional investing that he has named after a retail brand.
“It’s what I call The Woolworths Indicator - if they are opening or planning to open a store then there is a pretty safe bet they have done their research on the demographics and future viability of the business, which I believe points towards a reliable long-term rental market.”
Speculators and commentators have been predicting price falls in the coming couple of years as interest rate hikes bite and inflation eats away at wages that are not keeping up with cost-of-living increases.
But Mr Bell remains unperturbed and is still seeking buying opportunities.
“Properties always go in cycles, so although there will be some areas that drop there will also be areas or types of buildings or demographic areas that increase,” he said.
“Much of my focus is on suburbs that have a strong rental demand, irrespective of prices potentially falling.”
Property management of such a prolific and fluid investment has at times proven to be a headache.
“Often you enlist a good property manager only to find they grow too big and you become little more than a number for them or the particular property manager that you were using at an agency leaves and the service level drops.
“Occasionally, I do manage my own properties, but I tend to keep it to only a couple that I self-manage, as it still has time constraints.
“I find it better to have a good reliable property manager that knows how to pick up the phone and doesn’t rely on emails to communicate.”
Sacrifice worth the gains
Mr Bell’s advice to young people looking to emulate his investment success is to find a way to invest as soon as possible.
Affordability issues are undoubtedly more of an obstacle than at the turn of this century but any sacrifices that allow young people to buy a cheaper property or embark on rentvesting are worth it, according to Mr Bell.
“It might be as simple as looking how much you’re spending on their Friday nights or takeaway food as a way to save that first deposit or it might be more involved and involve a second job or side hustle but it’s worth the effort.
“I also strongly recommend doing the research, understanding the market, doing as many training courses as possible, finding good real estate agents and a broker that works with more than the big four banks to help you get that first and subsequent investment properties.”