Young Property Investor Aims For 30 By 30
When market conditions are slow and capital growth is harder to find, there are still ways to make gains through investment. In tougher times, canny investors continue to build wealth by adopting sophisticated strategies that add value to their property, outside of the market.
While conditions around the nation look to be on the improve, following loosened lending requirements and three interest rate cuts, smart investors should still consider looking beyond a simple buy and hold strategy. By combining manufactured equity with strong capital growth, gains can be compounded.
A young investor who has benefited through this tactic is Sam Gordon, who in ten short years has positioned himself to achieve a goal of 30 properties by the age of 30.
Can you tell us a little bit about your first investment?
I was just 19 (in 2009) and my first property was a two-bedroom unit in the heart of the Wollongong CBD.
It was a bit tired and needed some cosmetic renovations, but it was quite a large unit for the price, which was exactly what I was looking for.
I paid $275,000 and went in with a 10 per cent deposit, at the time only earning $584 per week after tax. This consumed my savings and stretched my borrowing capacity to the limit.
I renovated the unit for $4,500 with new carpets, paint, an updated kitchen and bathroom and new appliances.
I rented it out 10 months later for $380 per week and had it revalued at $330,000.
What do you love about property?
I love that it’s hands-on and with every purchase you make, you're owning a little bit more of Australia.
How has your strategy evolved as your portfolio has grown?
I first ran into the problem of servicing, so sought out high cashflow deals. Then there was a shortfall of capital, so I turned to manufacturing equity through renovations and small developments. It has culminated in a nice hybrid mix of manufactured equity and high cashflow with each deal.
As a young person on a low income to begin with, can you explain how you were able to finance such an impressive portfolio?
After the unit and then a small development, I turned to high cashflow deals that allowed to me accumulate many more properties. The finance lenders look a lot more kindly on something that's putting dollars into your pocket every week as opposed to being negatively geared and costing money.
In your early days of investing, did you make any mistakes or learn any critical lessons?
My first property was the only thing I have ever bought that was negatively geared. I will never do this again. Unless you are on a very high income and want to offset tax, then maybe look to highly depreciable neutrally geared properties. But I would never buy negatively geared again.
Where do you focus your investments nowadays?
I buy Australia-wide. So I have an assortment of properties spread across Sydney, Brisbane, Adelaide and regional South Australia.
As a sophisticated investor, you have recently had great success, building wealth through small-scale developments. Can you share with us the nuts and bolts behind this more advanced investment strategy?
I have become quite skilled at manufactured equity and at high cashflow deals, or hybrids.
The first involves purchasing land wholesale, typically sourced through my industry contacts before they officially hit the market. After purchasing the block, I either construct a duplex or dual occupancy dwelling on it to maximise the rental return on the product. We typically see equity uplifts around the $100-150k mark and positive cashflow typically exceeds $10,000 per annum.
The second component involves sourcing unit blocks below market, individually titling them and then value-adding through a renovation. I have been hugely successful, typically pulling all of my money out of the deal and achieving a recurring passive income stream as well.
These have become my favourite type of project and I have completed two in the last 10 months.
What are some of the benefits and the main risks involved in this type of investment?
The main benefits are the equity uplift and the positive cashflow position you achieve afterward.
Risks or things to consider are the holding costs while the small development is being undertaken or when the unit block sits vacant throughout renovations. This is less of a burden with a unit block, as you can typically move from one unit to the next and have them leased quite quickly afterward.
What's next? Where do you hope your property investing will take you from here?
I am aiming for 30 properties by 30, which gives me just over a year to achieve. I am going through the process of purchasing my nineteenth and if I ramp it up with another duplex deal or two, and perhaps another unit block and some below-market capital city buys to balance out the portfolio, I will hopefully hit my target.