NEW MEMBER – ANY ADVICE APPRECIATED

I am new to the site and the forums and am just figuring out how it works. I have posted this for Steve but would greatly appreciate any feedback.

Dear Steve,

I wonder how many letters to you open with; “I bought your book at the airport”?

But that’s what I did. Three months ago whilst waiting for my flight from Melbourne to Tasmania to visit my mother I bought From 0 to 130 Properties…I deliberated for about 20 seconds and then thought to myself “this could be the best 30 bucks you’ll ever spend”. I’ve now got a feeling that it probably was, but have yet to prove it to myself.

I think it is fascinating how people only really seek understanding and find it when they need it and are ready for it. When I first bought your book, I skimmed through it in a fairly superficial way, focusing on the subject areas I thought of relevance to me at the time. I was looking for clues to best manage the minimal real estate I already owned. I understood the message that I needed to work towards turning my two negatively geared properties into positively geared ones. I did not really internalise, nor get excited about the macro message that I could use this information to create the life I want. Until now!

Recently, circumstances in my life evolved in a way that found me re-reading your book, cover to cover in one session and, this time, not only “getting it” but, getting very excited about the possibilities. I now find myself in a position where I could really use some urgent advice from a mentor like yourself who has the benefit of real experience.

Without wanting to bore you, some background on my situation would obviously be useful.

I am 43 years old and a single mother to 2 teenage children. My children are not my biological children but my “foster” children (although I don’t make this distinction nor see them in that way). The children are Aboriginal/Fijian. I have known them since they were 3 and 4 years old respectively. Their parents, my ex-partner and his previous partner were, themselves, products of dysfunctional families in which they suffered abuse and neglect (an ongoing legacy of Australia’s dark history of our treatment of the traditional owners of this country). Consequently, they were incapable of parenting their own children who were also abused and neglected. The now have a stable, safe and loving home with me.

I have worked in the arts industry all my life and have always been fortunate in successfully combining my two great passions in my work ie; the arts and social justice. My career has spanned the theatre, radio, and music industries. Over the past 12 years I have run my own music industry management business managing the careers of two of Australia’s most respected Aboriginal singer/songwriters and recording artists. I have had the privilege of touring and travelling nationally and internationally, meeting many of the musicians who were icons to me and, most significantly, being welcomed by Aboriginal communities across Australia and learning much about the unique and irreplaceable culture available to all Australians who care to listen. My life has been rich and rewarding in every way but financial!

There is little money to be made in the music industry. My parents were upwardly mobile working class people who, like the majority of working class folk, lived from paycheck to paycheck and knew nothing about creating wealth through property, stocks and shares or by any other means. They strove to buy and own their own home, pay their bills and give their kids a good education in the hope that we would do better. They had no wealth creation skills to share.

So it was that my successful entry into the property market came about by good luck, not good education. In 1994, whilst employed in the public service (ABC Radio) and understanding that the bank would see a public servant as a good credit risk, I decided to buy my own home. I purchased at auction a livable but unrenovated 2 bedroom terrace house in Brunswick, Melbourne for $100,000. As you will have gleaned, the timing turned out to be excellent. The house was 5 kms from the city in a suburb which was about to become white hot. The inner city property boom ensued and my house skyrocketed in value.

Not that this was of any value to me for a long time because it took me until 2000 to understand that I had some serious equity in my home that I could utilise in some way. This realisation only came about because I was starting to sag under the pressure and responsibilities of my business and decided that I wanted to change my lifestyle. Having grown up by the beach I decided that I wanted a sea-change (such a cliche now, I know). I wanted to get out of the city and back to living by the beach. It slowly dawned on me that I might be able to use the equity in my Brunswick home to raise a loan for another property. I did not want to sell my Brunswick home as I saw it as my nest egg/superannuation replacement.

I had a good friend living in Coffs Harbour and there were work possibilities there. Coffs was halfway between Sydney and Brisbane with a large airport and a university. So I looked for property there. Again the fates smiled on me. In Jan 2001 I bought a 5 bedroom house on 2,300 sq meters of land on the edge Sawtell, the most desirable village in the region, for $125,000. The house was close to all amenities and backed onto a creek.

I was over the moon. This was to be the base for my new life. I could have renovated the place with the money I spent on buying house and design magazines whilst I dreamed about renovating the place. But it was not to be. I took on full time care of the children and their needs (school, extended family etc.) have kept me and will keep me in Melbourne for at least the next four years.

I couldn’t fit the 2 kids and my business into my 2 bedroom house in Brunswick so I moved into a larger rental property with a view to doing up the Brunswick house and renting it out. I got part way through the works on the house and stalled. The demands of raising the children on my own left me little time to attend to the Brunswick property. It sat empty loosing money for 18 months. I finally decided to sell it at the end of last year. I sold it in October 2003 for $344,000.

I was by now pretty excited about the possibilities of real estate. I decided that I would use some of the money from the sale to buy another property in Coffs Harbour. I used around $80,000 for a deposit and costs on another great buy in area called The Jetty, the prime up-market tourist precinct with a proposed 10 million dollar facelift/redevelopment of the area in the pipeline. A bought an older style 2 bedroom house which had been simply but elegantly renovated. The house cost me $305,000, a lot more than I had been used to spending, but I know it was a great buy and will appreciate in value quickly and significantly.

Both my Coffs Harbour properties are rented and in the hands of a good property manager. Unfortunately, they are both negatively geared at the moment although I am working towards positive cash flow from them (I hadn’t read you book when I bought them!).

I then loaned my mother $60,000 to enable her to buy a house in Tasmania which was for sale for under market value. She bought it for $106,000, its value was more like $170,000 at the time of purchase. I say loaned because we have yet to settle what is the best way for me to set up this contribution to the purchase of her home. She is open to whatever works best for me eg: a simple loan to be repaid at bank interest rates on selling the house, a joint ownership agreement which would then make it another investment property for me etc. This is a rather vexed issue for me in that I have lost that $60,000 cash to put towards any further purchases of my own for the time being. Although my mother proposed that she would sell the house in 12 months if I needed the money, I don’t want to have to do that to her if I can avoid it.

Then came my next dilemma; what to do with the remaining cash? I then decided that, given that I would be stuck in Melbourne for the next 4 years and was still renting, I should buy our own home in Melbourne. I got stuck into to researching the market in the areas I wanted to live in and looking for financing. Not surprisingly after these years of boom, I found that to achieve this I was really going to have to stretch myself financially and to get the money I needed I would have to go to a lo doc loan option.

After 2 months of shopping around and detailed research I settled on 2 houses that I really wanted. I worked really hard to get the financing in place. My first choice house goes to auction this week-
end (Sat the 27th March). I made a pre-auction offer to them which was declined. My second choice house went to auction on the 13th of March. This house was going to be a bargain if it went for the price they were quoting. Having my second preference go to auction before my first presented me with a real dilemma which is why I made an offer on my preferred property. I had to decide whether or not to risk letting the bargain go.

As it turned out, I had to travel to Sydney for my cousin’s wedding on the week-end of the first auction. This helped me in my decision to let it go. I agonised about it, had sleepless nights, but in the end decided to put all my energies into trying to buy my preferred property. When I got back I found out that the “bargain” had sold for $56,000 above the quoted price so it turned out to be no bargain at all.

And this is when things got interesting. I had done some damage to my hand whilst away and had to go to the hospital to have it checked out. Knowing I would be in for a long wait I grabbed something to read on my way out the door. I picked up your book again. This time, with my circumstances and property investment dilemmas having changed since the first time I read it, I read it cover to cover in one day and it shifted my entire thinking on what I was about to do.

And, although it’s taken a while, this leads me to the question I would really be grateful for your opinion on. Should I buy my own home or invest in positively geared real estate?

Buying my own home would mean locking myself into lo-doc refinancing of my existing loans of $365,000, using equity of around $100,000 as well as the new loan at around $270,000. I would be extremely stretched financially and very vulnerable. As I am currently not working, having taken a year off to recharge my batteries after 20 years without a break, I would have to use the $60,000 cash I have left to top up the mortgage repayments on all the properties. Basically I would erode this capital considerably over the next 12 months. Even when I go back to work the size of the new mortgage would present a real risk should rates increase.

On the other hand, I can see the logic in creating wealth through positively geared property. I really enjoy the real estate game and have gotten great pleasure out of my three purchases to date. I have already spent a considerable amount of time over the past 3 years researching and shopping for real estate. I enjoy it. I have read a number of good books including yours. I have a home office and I have time on my hands this year (a unique situation for me).

Given the above scenarios, it may seem that the answer is obvious but I worry about spending the next 4 years losing money paying someone else’s mortgage while renting. At $280 per week that rent would amount to $58,240 of dead money over that time.

What do you think? My first preference home auction happens this Sat!

Thanks for the book and the website.

Warmest regards,