LEMONS

Finally back! Unexpected visitors on top of everything else.
I got the notion to become serious about investing in property in late 2000. I already owned my own home and was looking to do something with my now expendable cashflow to secure the rest of my future.
I started to do a bit of reading (Jan Somers) and shortly after came across an ad for Henry Kaye in the local newspaper.
$12,000 and 4 days later after the seminar up in Sydney I thought I was Donald Trump.
Even though he (H.K) was slagged in the media as a criminal who robbed thousands of people out of thousands of dollars, I found his course excellent (albeit a little overpriced) and I came away with a lot of useful information.
I selected an area to invest in – Mentone; a bayside eastern suburb of Melb.
It is close to good schools, 15 minutes to the city by train, close to Southland and the beach, and it was an ‘overflow’ suburb just near Brighton and Black Rock.
I spent 3 months driving 45 minutes every other day from my house to trawl the area, the r/e agents’ windows, ask them questions. Every saturday was spent pouring over the r/e section of The Age, followed by visiting all the auctions in the area in the afternoon.
Finally I found 2 properties that looked promising;
1. a brand new 3 x 2 townhouse in a block of 4 for $425k. which had been on the market for all of my research period. The rental appraisal was $450 p/w.
2. an older 2 x 1 semi-detached villa unit with a lock up garage in a block of 12, that needed renovating. It was asking $225k. It came on the market towards the end of my research, and was cheap for the area due to the condition and the vendor had died – it was vacant and was being sold by the kids. Rental appraisal of $250 p/w renovated. I had to move fast on this one.
I put in low offers on both; $390k on the townhouse and we settled on $405k, and $204k on the villa with access to the property immediately to commence renos, which was accepted.
Both offers were accepted the same day.
The reason why the offers were accepted was because I offered 30 day unconditional settlements (one of Henry’s strategies to get a low offer accepted) but I didn’t even have finance approved!! I had a ballpark figure in my head of what I would be able to borrow, but I hadn’t even talked to the bank yet.

So I had signed for 2 properties on the one day, for $609k plus costs, using my PPoR equity as deposits. I actually used $5,000 from my credit card as a deposit on the villa as the equity loan was not available yet, and I used a deposit bond (another Henry strategy to not use your own funds) as a deposit on the townhouse.

I then applied for finance and remember thinking at the time; ‘you idiot – what if the finance isn’t approved?’ It was, but only just. My wife was about to give birth to our son and she was panicking.

One week from settlement, the loan was not organised by the lender (not my normal bank) and I suspect that it was due to negligence by the loan officer handling the application. I’ll never know. I ended up not being able to settle on either of the properties for nearly 2 weeks, and paid penalty interest of about $5k I think from memory. Should I have sued?

Anyway, we got through settlement, then I found out that the rent on the townhouse was only going to be $350 p/w -$100 p/w less than the appraisal! I was furious at myself for not checking this properly beforehand. I had a written appraisal to give to the bank for finance, but that was all. We got a tenant after about 6 weeks – settlement was early December and no-one was moving anywhere.

The renos were going o.k on the villa, but it ended up taking 4 months to complete – I expected it to take 2 months. Cost was $18k. The rent appraisal on it was $250 p/w and the rent was actually $210 p/w. Not happy once again.
So between the two properties my rent shortfall from expectations was $140 p/w. OUCH!

I did most of the reno work myself (other than electrical, plumbing carpet, polished boards, some plastering) and it looked great. We found a tenant 3 weeks later.

We were without income on over $700k worth of loans for 6 weeks, no income on the villa for 4 months, and they were heavily neg geared. The depreciation schedules softened the blow a lot in the tax returns.

My investing career began with a disaster, but both properties did well with growth, and those expensive mistakes taught me a lot.

Cheers,
Marc.
[email protected]