Buy Now. Lloyd Edge
but, of course, I didn't know any of this back then. A mentor might have advised me, ‘Don't buy a home to live in — just invest’. Who knows? I might have been advised to buy Rockdale anyway. Being close to amenities and close to the water, it was a sound investment (albeit an accidental one). All I know is I had no strategy, because I didn't know what I was trying to achieve. I didn't have a clear goal.
In fact, I wasn't happy with my first few properties, because in those days I had quite a bit of debt. Those properties were negatively geared, and it frustrated me because I wanted to create money through property. So you see, even after I'd started buying investment properties, I didn't know what I was doing.
That was almost 20 years ago. Today I've achieved a lot of what I set out to do. My goals included buying my dream home (I cover that in chapter 5) and building security for my family. I have a strategy in place for how to pay my property off through my investments. I no longer dream of what I want to achieve in the property markets. I've got other dreams, but they're a little different.
My advice to my clients is not predicated on a hypothetical strategy, but on long experience helping hundreds of clients each year work towards achieving their own goals. That's what's important. It's about achieving your big goals and enjoying life to the full.
AN INDEPENDENT INCOME
Everyone needs a roof over their head, but that's not the only reason to focus on property. Today we can see just how important it is to be able to control our own income. Even in times of crisis, when job security goes out the window, property will continue to generate a passive income, which is why it remains the safest and most effective way to shore up your income and lifestyle goals.
But to really make it work for you, you first need to understand why you're investing. Everyone gets into property for a different reason. For many, particularly investors, it's to try to build wealth and set themselves up financially.
Many of my clients start out without a strategy. They don't know where or what to buy, and they underestimate how much a property will actually cost. So for every client who walks through my door, the process starts with goal-setting (more on this in chapter 1). This is a vital first step because, before you create your property investment strategy, you need a reason to begin investing, and you need an objective that motivates you to stick to it.
Think about where you would like to be in 10, 15 or 20 years' time. Once you have your end goal in mind, you can begin working on strategy and finance, and taking the steps needed to build up a property portfolio and achieve that ultimate long-term goal — financial freedom. We'll get into all of that in this book.
THE TRIFECTA STRATEGY
Fifteen years ago I was a full-time music teacher on an income of less than $70 000, still paying off that one-bedroom unit in Rockdale, and I realised that if I kept doing what I was doing, I was never going to achieve my goal of securing my dream home.
I could see that negative gearing was going to keep me at work forever, because I was subsidising the mortgage through my income and waiting — potentially for decades — for capital growth.
So I looked into ways to create positively geared investments and bought a high-cashflow rental property in a mining town, which lost most of its value and rental income when the resources market bottomed out. I've never made that mistake again!
Now I research the markets for high-growth properties with good rental demand in areas with multiple stable economic drivers. I'll cover this in chapter 10.
When investing in property, I also look for ways I can ‘manufacture equity’ rather than relying solely on the organic growth of the markets. Manufacturing equity might mean anything from a cosmetic to a structural renovation to boost the value and rental yield of a property. We will explore how to create your own equity in chapter 7, and cover this renovation strategy in depth in chapter 8.
While you might be priced out of the markets in the capital cities (we cover reading the markets in chapter 9), there are still many properties available across the country that you can buy, subdivide and then sell off the backyard (known as a battle-axe lot). These properties can offer a great cashflow injection for your portfolio. I did this a few times while building my portfolio.
The investment strategy that really launched my property portfolio like a rocket came through my discovery of the power of building duplexes. When I built my first duplex and subdivided it, I made twice as much in equity as I earned in a whole year from teaching.
THE TRIFECTA STRATEGY
After this aha moment, I started to acquire several properties a year, just using equity and manufacturing capital growth instead of waiting for capital growth to occur organically. I have regularly seen this strategy create upwards of $200 000 in manufactured equity as well as providing positive cashflow through the dual income.
Doing this allowed me to take control of where my portfolio was heading and accelerate that growth. This meant my portfolio was growing, regardless of what the markets did.
The real power of the trifecta strategy is that you're able to manufacture instant equity then hold properties as they earn you more money than you're spending. By holding these properties over long periods of time, you'll also benefit from their ongoing capital growth.
Better still, it's a process you can ‘rinse and repeat’. By using my trifecta strategy, you can very quickly grow your property portfolio and your income, and before long you'll find yourself among the 1 per cent of Australians who hold more than five investment properties.
And best of all, those properties will be earning you an income in the process.
WHERE INVESTMENT HAS TAKEN ME
Fast forward 15 years, and I now own a $15 million property portfolio and live in my dream home.
The main underlying reason I was able to achieve this was because I knew my why. I knew what I wanted from property and I put in place the strategies that would take me there.
I wanted a passive income that would allow me to quit my teaching job, all the while building long-term wealth that would continue to grow no matter what the markets were doing.
After the global financial crisis I started to set myself up to mitigate against future major economic downturns. (I wonder why more people don't do the same.) For me, this meant first educating myself, with many nights spent studying and researching the property markets while working at my teaching job during the day. In less than 10 years, at the age of 40, my positively geared portfolio had replaced my income and I was able to retire from teaching. A couple of years after that my wife Renee and I bought our dream home.
Most people are too fearful to leave a secure job to follow their dream. But if you build up a positively geared property portfolio that pretty much looks after itself, then you no longer need to rely on another source of income because the investments are paying you an income.
I am now truly financially free.
I have my own business as well. The two income streams, from my property portfolio and my buyer's agency business, offer me more security than I could hope for, compared to a job where at any point the boss could say, ‘We don't need you anymore’.