Hello from Eric Wu, a nurse, a property investor, and a mortgage broker

Hi fellow property investors

A few years ago I found this site, previously SS, and was unable to walk away from it, learnt so much from it. such a great positive environment, chatting with like minded people is a rare thing nowadays ( because property investors are only 1% of the population).

I arrive in Sydney in 2002 as an international student, done many jobs. Worked in a public hospital Intensive Care Unit as a RN for some years, the alarm still rings in my head after years leaving clinical work.

Lots of studying and researching, built a property portfolio, wasn't easy, but rewarding.

let me share my journey and some of my thoughts here:

Part 1/3
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What is our story?

Arrived in Sydney at the age of 29 with little money and broken English as an international student from China for my Masters Degree. My wife (girl friend back then) came to Australia a year earlier than me, studying her Masters Degree in Finance. Back then, after paying university fees, my wife and I did not have much left in our pocket. We have been through the same confusion, despair, frustration and desperation almost every new migrant been through.

Worked really hard in the first few years and saved every dollar we could.

Now we have 2 beautiful children, and a 4.8 million property portfolio.

How we started?

In the very early days we figured out that the best thing for ourselves and our children is to have a secure financial future, and provide our children with every possible opportunity we could. We purchased our first PPOR in 2007 in Hornsby. It was a 3 bedroom, 2 bathroom apartment. 3 years late, its value increased nearly 30%. Meanwhile, we have been doing research for quite a while and were on the lookout for something to invest in. The growth on Hornsby property sparked our inspiration. We came to the conclusion that property investing was a perfect vehicle for us to reach our goal – secure financial future.

Properties are such a powerful investing vehicle, we have managed to turn the initial $80k (deposit to the Hornsby property) into $1.6 million equity, that is 20 times, in 8 years.


What did we buy?

We prefer houses with land that we could make improvements and add value to the property, such as adding an extra bedroom, changing the configuration of the house, or even building a 2nd dwelling on the same block of land. We could not do the same with units or townhouse.


Where did we buy? And why?

The 4 areas we bought in NSW (Hornsby, Blacktown, Marayong and Marsfield) are well established areas with good infrastructures, such as public transport, amenities, schools and hospitals. These are the areas where people want to live in, they are always in demands. We applied the same principles to our QLD purchases. All of them had good growth so far.

There are several principles we use when purchasing:

1. Buy in major/metro cities, such as Sydney and Brisbane, where there are multiple industries support the market, such as financial services industry, education industry, tourist industry and manufacture industry. These major cities tend to have good population growth (local population growth and immigration), and attract domestic and international investments, which in turn creates more sustainable employment opportunities.

2. Buy in a growing market (before or at the early beginning of its growth phase) and let the growing market to do the heavy lifting, while we could ride with the tide.

3. Buy under market value and under the median price. When you buy Under Market Value, you already make money when the sale contract is signed. And when you buy Under median price, you will have more opportunities to increase the property value by cosmetic renovation or minor improvements, which can also enable you to charge a higher rent. Meanwhile, in the unlikely event of market falls, you have less chance to loss big dollars (because it is under median price, not the top dollar property)

4. Buy properties as close as possible to their land values. 70-80% of the purchase price is land value, 20-30% of it is dwelling value. This will rely on good research (historical sales and current trend)


What is the ideal investment property?

We consider the ideal investment property to have the following characters:

1. Having good short term and long term growth potential. Short term growth could enable us to extract equity faster to expend our portfolio. Long term growth could create good real wealth for us.

2. Having good rental return. Good rental return minimizes the out of pocket expenses on an ongoing basis. The best outcome is that the property generates positive income, or it can look after itself without costing us much.

3. Located in a derisible area attracting a wider range of tenants, which reduces the vacant period

4. Having “good bones”, having good simple and durable structure, having good layout /floor plan, also has good potential to increase value by minor renovation.

5. Being a “bread and butter” property, where the land value is at its maximum value and the dwelling is at its minimum value. Nothing flashy.


Interstate purchase?

We live in Sydney, bought in Sydney and Brisbane. In late 2014, we figured out that the return in Sydney property market was not financial favorable to us. So we looked other capital cities (we did briefly consider regional towns, but were not convinced with the capital growth potentials in regional towns).

Brisbane was the first capital city came to our mind. It has not had much growth from the GFC in 2007 -2008, in lots of areas the prices were in par or even lower than 2007. The 2010-2011 floods had further depressed the market. While among the 3 major cities in the eastern coast, Sydney, Melbourne and Brisbane, historical data have shown that when the market moves, Sydney moves first, then Melbourne, and followed by Brisbane. Sydney back then has had a lots of growth, Melbourne (largely) were out of our reach. And the median house price between Brisbane and these 2 major cities were huge, while the household incomes were not that far apart. Base these facts we concluded that there should be lots of growth catch up in Brisbane (hence good growth potentials).

We stuck a big Brisbane map on our wall. It was an old NRMA map with radius circles from Brisbane CBD (showing 5 kms, 10kms, 15 kms and etc.). We targeted the price range from $350k -- $400k, because we found that properties in this range tend to have better rental yield. Then we selected several areas, done a lot of research: previous growth, current price, demographic of these areas, popular property types. We used Excel to do cash flow analysis. At one stage we were unable to go to sleep without checking www.realestate.com.au and www.domain.com.au.


It turned out that out of these 4 properties, 3 have done better than we expected, the 4th one needs a bit more time to prove its worth. Happy result.


What is our goal?

Very early on in our property investing journey, we had a vague goal that we wanted to be financial independent (but we did not know when, nor set up a timeframe). By that time we might not give up work, but work becomes an option, not a necessity.

As the years went by, it is becoming clearer and clearer to us that financial independence is the thing we really dream of and willing to work hard for. We have the vision that we become the master of our own time, we could decide how to spend our time without worrying about money, and we could also decide what to do and when to do it. It is so appealing to us, especially after our first child was born.

Property investing has provided us with a tangible vehicle to reach our goal, it has also opened our eyes to a much bigger world (not only financially, but also socially). We have met (not only face to face, but also through social network) many inspirational people along our journey, they have helped us to change our mindset (which is the hardest thing to do when we look back) and set us on a rewarding journey. We want to model them and help others to achieve bigger and better things.

We are on our way to financial independence. When? As a wise man said to us “It takes longer than you hope for, but shorter than you think “

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Part 2/3
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Where do we want to be in 5 years?

We would like to double our current portfolio in 5 years time. We would look into small development projects and commercial properties.

What's our property investing strategy?

We are primarily buy –and –hold & buy –renovate-and -- hold type of investors. Property is really a long term investing vehicle. People loss money when they got in and out the market within a short period of time due to the high entry and exit costs. The longer you hold, the better end result you will have.

When you buy a property today, the only thing that does not change is the purchase price on the sale contract. With the normal 2% per year inflation rate, even if you do not pay down any principle, after 30 years, the actual dollar value of the purchase price will drop to approx 55% of the current dollar value. Pretty much you have made 45% gain within 30 year without even doing anything, let alone the nature growth of property price. In addition, the compounding effect on properties is amazing, it takes much shorter timeframe for a property to have the same amount of capital gain in the later time than the earlier time. The longer you hold, the bigger gain you will have. And it takes much less time to get the same capital growth in the later holding time than the earlier holding time.


Do we renovate our properties?

We would love to renovate all of our investment properties to increase the value and rental return, and also provide tenants with a better place to live. However, we did not have the financial capacity to do it, and also property investing is a business, it needs to be considered from a business point of view in terms of cost-to-return. Every dollar spent needs to produce more returns than itself. By saying that we have learnt lesson along the way. So don’t get emotional, let your brain make the decision, not your heart.

We have renovated several of our properties, and the rest were in their original conditions.

The Blacktown property was a good example of what a renovation can bring. At the time when we bought the property, every interior wall of the property had a different color, even the sale agent called it “rainbow” house. We paid $300k, and spent approx $11k on a cosmetic renovation. 6 month later, the bank valuation came back $350k. Now it is worth more than $650k. We have done well with this one.


What loan structure do we use?


We use interest only loan across our entirely portfolio, which provides the following benefits:

Interest only loan reduces ongoing cost, and maximizes serviceability, which is very important in the acquisition stage

Interest only loan provides maximum tax benefits

The combination of fixed rate and variable rate

The combination of staged fixed rate and variable rate, which provides the following benefits:

Stability of loan repayment with fixed portion of the loans, we know how much we need to pay every month, without worrying about interest rate increases.

When interest rate drops, we could enjoy the lower repayment with the variable portion.

Staged fixed rate, which make sure that not all loans come off fixed rate at the same time and destabilize the whole portfolio. It is also a good risk mitigation strategy.

Most of the properties have their own loans. We had 2 properties cross collateralized, which is very unfortunate. It was at our early stage of investing, back then the mortgage broker we used was a half bottle full person, who did not really understand the full impact of the collateralization, and we were flying blind. Now it is difficult to uncross with the current lending environment. So having a good mortgage broker on your team is very important.


Negative gearing vs positive gearing


We consider ourselves as “growth” investors, capital growth is where the real wealth is created. Either negative gearing or positive gearing is the first thing we consider when selecting property, they are the factors we consider after we have decided what and where to buy. Positive cash flow (positive gearing) definitely helps to hold on the portfolio through property circles. Very negatively geared properties do have an impact on the cash flow, and affect the investor’s lifestyle, which is not ideal. So it is better to have a balance approach: not too negatively geared and also have good capital growth potential.

In general, properties with good capital growth often have lower rental return (hence negative gearing), while properties with good rental return (positive gearing) often have lower capital growth. Properties with both good capital gain and rental return are difficult to come by.

It also depends on the phase of property investing (acquisition, consolation, sell down). When a new investor starts out (acquisition phase), he/she needs properties with good capital growth to gain enough equity to use for the next purchase ( which often is negatively geared). Once he/she has acquired sizable portfolio, he/she needs to exam the entire portfolio, sell non performing properties and keep performing properties (consolation phase), it could be negatively or positively geared. When he/she wants to exit work and living off recurring income, he/she will need to sell some properties to pay down debt and let the portfolio generate positive income to live off (positive gearing).

A combination of negatively geared and positively geared properties in the portfolio provides good growth potential and reduces the risk of losing the portfolio (due to too much out of pocket expenses).

We do not have preference over negative or positive gearing, as long as it helps to reach our goal.

And a negatively geared property can become a positively geared with annual rent increases.


What is our current cash flow position?

Across our portfolio, the rent income is higher than loan repayment. However when we add the ongoing costs, it becomes slightly negatively geared.


Landlord insurance ?

We purchase landlord insurances to every property in our portfolio. We also purchase building insurances to every standalone house (not strata titled) in our portfolio.


What is the most difficult/challenging aspect of property investing?

The most difficult/challenging aspect of property investing is the change of mindset. Since early age, our parents told us to study hard in school, go to uni, find a good job, work hard and get better pay, and then the trade mill goes on. We were blinded by the set life pass, we never thought or seen anything else, until we met some property investors, our eyes were opened, the purpose of life become motivational, our attitude changed. The way how we think changed as well.

Get out of your comfort zone, live your life to its full potential.


What was our biggest blunder/worst mistake so far?

The worst mistake we had made so far was a renovation on one of our properties in Brisbane. Didn’t do our due diligence properly. It turned out to be a problem. Still doing fixing up work. Big lesson learnt.


In hindsight, What will we do differently given the chance?

If we were given the chance, with proper due diligence, we will get in to the market as early as possible, buy as many as possible, build the portfolio as big as possible and as soon as possible.

Time in the market is critical in property investing. Unless you get the fundamentals wrong (such as buying into a peaked mining town or a regional town with decreasing population, etc.), the sooner you get in the market and the longer you hold it, the bigger reward it will be.

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Part 3/3
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What is our favorite property?

We consider ourselves as conservative and cautious investors. So far most of our properties have performed well. These 4 properties in Sydney have done amazingly well. The Brisbane properties have good growth already, there are more to come. It is difficult to pick a favorite one, they are all our favorites. Some gave us better financial reward, some gave us good lessons.


Our advice / suggestion to new investors?

Everybody can be a good property investor. It is not rocket science. We started as humble migrants from overseas at mature age with little money in our pocket and broken English, have done it. You can do it as well.

Believe in yourself, it is never a failure until you give up.


Our tips for successful property investing?


· EDUCATION: developing mindset and knowledge; Having an open mind; Reading investing books (to build basic understanding of the investing principles); Reading property investing magazines (to see the current trend and what is available in the current mark); and reading property investing forums, speaking to other investors (which gives you real time information of your targeted market).

· SET your goals, based on the education above, work out what you want to achieve within what time frame

· BUILD a good team. Solicitor, Accountant, Mortgage Broker, Property Manager, tradies

· LEAVE emotion out of property investing. Making decision based on objective assessments, not personal taste or favor.

· Looking at big /broader picture, Looking at the trends, demographic, gentrification, new knockdown rebuild, etc. (numbers is just one part of the big picture)

· HAVE a balanced approach with CG and Cash flow. Cash flow enables you to hold on to the portfolio through property cycle, and let TIME to do the heavy lifting, whilst Capital growth is the real money/wealth creation.

· DO not procrastinate, take action once you have done enough research. There is never a time that you can have 100% information you need to make a 100% good decision. Trust yourself and be confident.

· Surrounding yourself with positive and like minded people to immerse yourself in this positive environment. Don't let no sayers hold you back.

· Having risk mitigating strategies in place every step of the way. Income protection insurance, life insurance, building insurance and landlord insurance for every property.
. And having enough cash buffer available if unexpected things happen.

· Be patient. Let the natural force "TIME" to do its work. relax and enjoy life.


Our plan to weather subdued market conditions?

We would consider the following options

· Assess the market conditions, it could be a good time to buy. “Be greedy when others are fearful, be fearful when others are greedy”.

· Considering renovations to increase property value and rental return.

· Looking beyond the subdued market, research into other capital cities. Australia as a whole has hundreds of markets.

· Re- exam our entire portfolio, considering sell non performing property

· Pay down debt when possible

· Looking into other asset classes


Using property managers

We use property managers for all our properties. They are crucial part of our property investing team. We do what we are good at and farm out what we are not good at. Managing rental properties is not something we are good at or willing to be trained to become good at.

We primarily choose property managers based on recommendations from other investors. We chose the one we think is the best after interviewing them.


Bought sight unseen?

With the 9 properties, we have viewed 8 of them. There is only one property we did not view, which is the one in Toowoomba QLD. It is a 3 bed room townhouse. We bought site unseen. But we did use a building inspector to check it for us.

There is nothing wrong with falling in love with a property. A property with appealing characters is often attractive to tenants, which could command better rental return. Unfortunately, this type of properties often attract home buyers and command a premium, which result in a higher price tag.

So far we have not really fall in love with any particular property, we buy suitable (for our own needs) properties within our budget for PPOR.

Buying investment property is very different from buying PPOR. You need to develop a “X-Ray” eyes to see through what appear in front of you ( the interior design, the color scheme, the fixtures, the landscape, the beautiful garden, the nice curtains and blinds, the list goes on), and work with the fundamentals. At the end of the day, it is the piece of land that appreciates, the actual house and everything in it depreciate.

Making decisions with your brain, not your heart.


Our education on property investing

Property investing is not rocket science. You don’t need a bachelor degree to invest in property. However it does take education and commitment to be successful. Looking back, we would say there are 2 types of education/development really helped us.

· Developing ourselves: developing a strong and positive mindset by reading books, listening audio books and podcasts, and speaking to other inspirational people. This is the hardest part. A strong and positive mindset could unlock the potential within you, you will be amazed what you can achieve.

· Learning property investing related knowledge: again, read property investing books (which will help you to learn the fundamental principles of investing), magazines (which tell you the trend of current market, and technologies people use to facilitate researches, such as Google street view, Google earth, etc.), and reading online property investing forum, speaking to other investors (to identify the real time changes in the market). Also with the modern technologies, you could turn your commute time into self- education time, download audio books and property investing podcasts on to your smart phone and listen to them while you travel. Turn your car into a mobile university by listening to these audio books or podcasts while driving.

The beauty with property investing is that time will heal most minor mistakes.


Tenants

Tenants are an important part of property investing success. They pay rent to cover most of the mortgage and help us to hold on to our portfolio. Good tenants are gold, we try our best to keep them in place. We charge fair and reasonable rents, and fix property related problems on time. We give consideration to reasonable tenant requests. At the end of the day, the property is their home even they do not own it. We look after our tenants to the best we can.

We have reasonable financial buffer in place for things like extended period of vacancy. We offer reduced rent and 1 or 2 weeks rent free if we found challenges in finding tenants.

Lower rent is better than no rent. For example, say the rent is $400/week, if we leave it vacant for 4 weeks to find a tenant. That is a loss of $1600. Instead of leaving it vacant, we drop the rent to $350/week, we are more likely to find tenant within 2 weeks. That is a loss of $700. It takes a lot shorter time to recover the $700 on $350/week rent than recovering the $1600 on $400/week.



Trust or personal names

We use a combination of personal names and family trust structure. We use trust for tax benefit and asset protection purpose.


Managing our debts & getting loans


We used mortgage brokers for all of our purchases. There are literally thousands of loans products available on the market. It is very confusing and time consuming to research all these loan products. If we did not use mortgage brokers, we probably already been consumed by the research and missed out on lots of good opportunities.

A good mortgage broker is critical in your investing team. He/she needs to understand your short term and long term goals, and has the ability to look the long and big picture, not only focusing on one or two transactions.

Our portfolio is slightly negative geared. The out of pocket expenses are not significant.

We use several strategies to manager our debts:

· Use different lenders for our portfolio (not putting all eggs into one basket) to spread the risk. 1million loan max with one lender.

· Each property has its own loan (except the 2 mentioned before). Do not cross collateralize loans.

· Extract equity whenever we can, and park them in offset accounts.

· Fix some loans with different terms, make sure they do not come off fixed rate at the same time, to reduce risk and increase stability.


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here is a bit more about us:


From international student to multi-million dollar property investor


【1个男人和他的9个房子的故事】投资房：玉哉 璞哉

 

Thanks for the post. I like it- especially how you started from scratch and did it all yourself

 

Well done Eric. Where are your next buys?

 

这个必须要点赞！祝您和太太新春快乐！

 

Thank you for sharing and well done Eric. It's very inspiring and looking forward to your inputs and progress in the coming years.

 

thanks @Otie

 

I will hold on for a little while to grow the business , and then go hard again.

 

新年快乐，万事如意

 

thanks mate ( I am not dare to use your username "lowIQ", not low IQ at all mate)

 

Congratulations mate. A great achievement. Also very self-less to share your story as I'm sure it will inspire many others, particularly young people who believe the odds are stacked against them.
I will enjoy following your future journey on this forum.

 

@Eric Wu your story also gave me a bit of confidence that I'm on the right track. There's always so much second guessing when your starting out

 

@Eric Wu only good for the Australian property market the more people you get to replicate your journey!

 

I enjoyed reading your story. Thanks for sharing.

 

thank you for your kind words @Foxy *****

 

Hi @Otie, that was my feeling as well, the first property is always the hardest one, and has the most buyer's remorse.

 

Thanks @Hodge

 

Well done with your achievements so far Eric, good read.

 

Well done Eric, thank you for sharing