Financially free at 32 – My 10 year property journey

First up, apologies for the sensationalist title.

I wanted to take the opportunity to share my property investing journey. I’m normally a very private person and personal finances is one of those touchy subjects that people don’t typically discuss, particularly between “muggles” – i.e. those not looking to create financial security for themselves.

However, though this forum I’ve been able connect with like-minded investors, gained invaluable insights, inspiration and motivation to keep going when the going gets tough. Sharing my story is my way of giving back to the community.

How it did start?
After reading books such as “Rich Dad, Poor Dad” and observing my own Dad retire in his 50s from his business ventures, I knew that I didn’t want to work for someone else and be chained to my desk from 9-5 (it was more like 9am-9pm in the early days of my career). I knew I had to do something different.

First year out of uni I met with a financial planner that proposed I invest in managed funds. I couldn’t see how this would make me wealthy so I did not invest.

I started dabbling in share trading. I made some money from the mining boom at the time, but I literally had no idea what I was doing and one share I invested ended up dropping to $0. I couldn’t see how trading shares would make me wealthy, nor did I want to spend my days day-trading, so I sold all my speculative shares and kept the blue chips.

I started a couple of e-commerce websites on the side which made me an extra couple hundred week in mostly passive income in the early years but with increased competition my margins were continually being squeezed. I no longer operate those websites.

Whilst all that was happening I also started reading property investing books/magazines and decided this might just be my ticket. I started saving feverishly for a deposit.

IP 1 – 2007 – Marrickville NSW
Second year into my graduate job, my first purchase was a 2 bedroom walk up flat in Marrickville, purchased for $307k in 2007. Friends and family thought I was crazy paying that much for a dump in an unsafe part of town. They couldn’t see what I saw – which was a suburb ripe for gentrification given the proximity to the city. I claimed the $7k First Home Owner’s Grant, moved in, renovated it and then moved back home with my parents.

IP 2 – 2009 – Eastwood NSW
I was due to get married soon and luckily my future spouse was sold on the dream to be financially free. She purchased a 2 bedroom walk up flat in Eastwood for $352k and claimed the $14k First Home Owner’s Grant. We moved in after getting married, renovated it, and then moved out so that we could rentvest.

IP 3 – 2009 – Belmore NSW
Meanwhile I had built up another deposit so I purchased a 2 bedroom ground floor unit in Belmore for $217k, walking distance to the train station. I was looking at Campsie at the time but got priced out so I moved to the next suburb along that train line. It still had decent demographics and none of the social stigma of Lakemba.

IP 4 – 2010 – Homebush West NSW
Since getting married we started pooling our financial resources together so again another deposit quickly built up so I purchased a 2 bedroom ground floor unit in Homebush West for $343k, walking distance to the train station.

IP 5 – 2010 – Baulkham Hills NSW (future PPOR)
We both grew up in the Hills District of Sydney and wanted to raise our own family in the Hills District. In 2010, the North West Rail link finally got approved and was due to be operational by 2019. We wanted to lock in 2010 prices whilst still rentvesting for the next few years. We didn’t have 20% deposit for this purchase so we incurred some LMI to purchase the $658k freestanding 4 bedroom house on a 700 sqm block.

Debt Reduction – 2012
Mortgage interest rates were roughly 7.5% at this point in time and there was a lot of doom and gloom in the media. I got caught out and sold my Marrickville unit for $456k, which I still regret till today. It would easily be worth $800k now.

I used the proceeds to pay down debt attached to my future PPOR and continued to save. Around this time I started to dabble back into the share market. Except this time, instead of share trading, it was long-term buy and hold in the form of ETFs and LICs, which are diversified investments that you can hold forever and will continue to compound whilst you sleep (a lot like property investing!).

IP 6 – 2013 – Guildford NSW
It took me 6 years to realise that I didn’t need to keep saving for deposits anymore!!!

Instead I borrowed against the equity from my Belmore unit to fund my next purchase, another 2 bedroom ground floor unit in Guildford, with a huge private courtyard and walking distance to the train station for $345k

IP 7 – 2014 – Zillmere QLD
I was starting to see that Sydney wasn’t offering much value anymore so I started to look north. I engaged with a buyer’s agent to secure my Zillmere purchase. My strategy was still to maximise capital growth so we targeted suburbs as close to Brisbane CBD as possible with my $450k budget. I purchased a lowset house right on the border of Aspley (desirable owner occupier territory) for $430k.

IP 8 – 2014 – Zillmere QLD
Same criteria as before – and I wanted to increase the amount of stock held to capture future price appreciation. I purchased a highset (downstairs not built out) for $374k. Again it was through a buyer’s agency because I did not want to spend my weekends flying up to inspect properties.

Debt Recycling with Shares – circa 2014
Combined with the proceeds from the Marrickville sale, we managed to save quite a lot into the offset account attached to the future PPOR, so much so that the repayments were actually less than the rent we were paying in the rental we were staying in at the same. So we made future PPOR our actual PPOR.

Around this time I was getting more and more comfortable with holding LICs/ETFs as part of my permanent portfolio so I started extracting equity out of my property portfolio to buy more LICs/ETFs.

Additionally, I started utilising a debt recycling strategy whereby I was paying down PPOR debt and extracting it back out as new deductible debt to invest in more LICs/ETFs, which paid dividends way in excess of mortgage interest rates. Dividends were roughly 7% (grossed up) at the time and were paid directly into the PPOR offset account that helped to smash down the PPOR debt ASAP.

Mini Retirement / Gap Year – 2015
We had a property portfolio worth approximately $3m at this time. We’ve been working hard non-stop to develop our careers and investment portfolio. We wanted to take some time off to travel. Justification was that even if property was only going up by 5% we’d be generating equity at around the same levels as our combined yearly after tax salaries.

Additionally, after reading blogs such as MrMoneyMustache I realised that early retirement was a real possibility for us within the next few years, so I wanted to experience what an early retirement would look like. I did not want to delay gratification forever and I was naturally curious what retirement would look like.

We quit our jobs and we took off on an adventure of a lifetime.

We were abroad for roughly 7 months, and when I came back I was surprised to have received multiple job offers. Despite my fears that having a gap in my CV would be detrimental, in fact it turned out to be advantageous during interviews.

IP 9 – 2017 – Boronia Heights QLD
I was back at work for almost a year at this point. I started going to PropertyChat meetups and realised I set my goals too low all along. A lot of investors that I met were gunning for $200k+ passive incomes and $10m+ property portfolios. I connected with a new mortgage broker in 2016 that truly understood my objectives and laid out a finance strategy so I could continue to accumulate more properties.

With a renewed sense of confidence and a rocket up my bum I extracted more equity out of my Sydney properties and purchased a 3 bedroom lowset house in Boronia Heights (Logan, Brisbane) for $312k via a buyers agent.

IP 10 – 2017 – Loganlea QLD
Same premise as previous IP. I wanted to hold as much stock as possible for when Brisbane really starts to take off. Purchased a 3 bedroom lowset house + self contained studio in Loganlea for $320k via a buyers agent. Buyer's agents are really a godsend as I was really busy in my new role at work as a software product manager. I've since converted to part-time (4 days) to optimise for work-life balance and learning to delegate as much as possible.

To be continued...

 

Overall Portfolio
So over 10 years I’ve managed to achieve the following:

• Total Property Portfolio Value (including PPOR) $5.2m ($2.5m in equity)
• Total Property Portfolio Value (excluding PPOR) $3.9m ($1.3m in equity)
• Total Shares Portfolio $600k consisting of LICs, ETFs and blue chips
• A fully paid off PPOR within the next 3 months

In hindsight, I totally underestimated what could be achieved in 10 years. Once the compounding/snowball effect starts to work in your favor, it is truly a sight to behold. I encourage every investor to increase your asset base as quickly and as safely as possible so that you too, can witness this for yourself.

Whilst I did get ‘lucky’ with the Sydney boom, I’ve been consistently investing since 2007, long before property investing became a national sport. There was so much negativity in the media during those days. I really had to learn to tune all that noise out and focus on developing a repeatable system. That system was accumulating as many middle-ring properties with strong transport links to major employment hubs (Sydney CBD, Parramatta, Brisbane CBD) where high-paying knowledge and creative jobs were being created.

My more recent purchases in Logan in outer Brisbane are more of a yield play but given those properties are still within a 1 hr commute to Brisbane CBD, I expect there will still be plenty of demand for these properties from renters, investors and home buyers alike.

Income Stream In Retirement
This part is still a work in progress, but happy to share what I know so far.

Currently my property portfolio is only positive cashflow by a few thousand dollars, certainly not enough to live off.

However, if I wanted to declare myself retired today, I could, but I would need to first convert that equity into cashflow. This is where a fully franked dividend stream comes into the picture. There are HUGE tax benefits in receiving an income stream in the form of fully franked dividends. The capital requirements are much lower, meaning an extremely early retirement is possible for anyone willing to look past the price volatility of shares and instead focus on the rock-solid dividend stream it provides.

I posted this earlier if one was looking for a secure $60k in passive income in retirement:
Why Property is Better Than Shares

Huge thanks to @austing and @truong for your contributions throughout the years. You’ve shown me that it truly is possible to retire off dividends. You've brought forward my retirement by a whole decade (roughly one more property cycle if I was to execute a purely live off rents strategy). I hope to replicate your success in the near future.

Tips for Investors

• Figure out your WHY – property investing is a multi-decade journey and there will be lots of ups and downs along the way. You will need a strong WHY driver to allow you to persist and endure the journey. For me it was pursuing financial freedom in my 30s, be able to travel the world on a whim, and fully dedicate my time and energy towards raising a family. What’s your WHY?
• Connect with like-minded individuals – I only had books and magazines to guide me for the majority of my property investing journey. It was a lonely journey because I had no one to share my struggles with. If I had sought out to connect with other investors and better utilised PropertyChat (Somersoft in those days) I would be in a much stronger position, possibly made less mistakes, and had some encouragement and company along the way.
• Develop strong financial habits – aim to save at least 50% of your earned income and direct savings towards investing activities. My wife and I were saving close to 70% of our combined incomes through a combination of investing in our careers and thrift. We banked every raise/bonus and still live as if we were on our $45k graduate salaries. $500 cold press juicers and $20 smashed avos do not excite us as being able to travel 6 months a year and having the option of being full-time stay at home Mums and Dads.
• Take action – Pick a direction and start moving. You’ll learn more about investing by doing than just reading about it. By doing you'll start gaining momentum.

Finally, I want to show some appreciation for my mentor and mortgage broker @Michael_X. Thank you for opening my eyes as to what is possible and connecting my goals with a finance strategy. I won’t ever forget you taking the time out of your busy weekends to show me around Logan. Finally, you’ve also shown me what it means to strive for ‘significance’ and helping others.

Happy to respond to any questions you might have. Go easy on me

 

@Jack Chen your an inspiration. You've earned your avocadoes I say

 

What an amazing journey......and. Sydney you beautiful thing
You are an inspiration on what can be achieved by investing smart and retire young

 

well done, thanks for sharing

 

A fellow worth meeting with.
Thanks for sharing the journey.

 

Very inspiring @Jack Chen. Thanks for letting us in on your journey

 

Congrats @Jack Chen. Multiple buys in the same year - what a beast!
This'll be great for media coverage or a young gun feature somewhere

 

........and bashed fetta


Oustanding achievement @Jack Chen . Thanks for sharing your journey.

 

You've done well Jack.

So whats the plan now? Become a broker or a buyers agent?

 

Good job Jack.
Sydney was good to you.

 

It seems to be a trend doesn't it...

 

Congratulations!

 

Killed it. Don't regret the Marrickville sale. Helped you spread your wings a bit and taught a valuable lesson.

 

Well done Jack! And good luck with your future plans. Just a few questions:

1) What ownership structure did you use to buy? If it was trusts, at what point did you start using trusts?

2) Most of your properties are in Sydney and would have had great CG, but at the start did you focus on CG or CF or did you look for a balance?

3) How do you think buying properties less frequently, and instead regularly investing small amounts in ETFs and LICs right from the start would have affected your portfolio?

4) In relation to debt recycling, did you use 100% of equity pulled out to invest in ETF/LIC or did you leave say 60%in the offset account as a buffer and invest 40% in shares?

Thank you for taking the time to share your story

 

.... and some people will just say you got lucky?

Its clear to see that it takes far more than this, but buying in Sydney was brilliant... capital first, then able to use equity to go full steam ahead.

 

Yes and property guru/mentor.

What about property developer?

 

I have to confess, I'm more than a little envious.

Any chance you might be kind enough to give a breakdown of the growth each property has experienced?

 

Only personal names as we are still underneath the land tax thresholds for both NSW and QLD. Definitely worthwhile to start looking into trusts if you're starting to exceed land tax thresholds and/or at risk of being sued and want some asset protection.

When I first started out I was weighted towards CG, however I still wanted decent yields so it would not affect lifestyle and to avoid being in position where I'd be forced to sell. Non-negotiable was walking distance to a train station so was willing to follow the train line out until I got the yields that I wanted. For instance, when we were buying our Sydney units were were getting between 5%-7% yields on purchase with next to no work required. I was prepared to be negatively geared/negative cashflow in the tune of up to $100/week for a given property if it meant higher CG prospects.

As time went on CF became more and more important for me. That's what led me to shares for income. Additionally, my two most recent purchases in Logan are my attempt at re-weighting towards CF.

I would advise against this as it's actually difficult to borrow against the ETFs and LICs to further expand your portfolio. On the other hand, banks will gladly let you pull equity out of property, which is what enables the compounding/snowballing effect to take place. Once you've got some equity under your belt is when you should start looking at other asset classes for income.

Both. I kept some as a buffer in offset and dollar cost averaged in over the space of about 12 months, until 100% of that equity pull was in equities.

 

Yep even the people closest to me say this to me all the time.