Secrets to building a multi-million dollar property portfolio
When property investor Vickie Sweeney was seven years’ old, she made a big statement.
She told her mum that she didn’t want to be as poor as her.
“I don’t even remember saying that, but obviously I had that in my head,” Sweeney told the Yahoo Finance Breakfast Club webinar on property investment.
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Unfortunately, the path to financial freedom wasn’t straightforward. Sweeney encountered a bad relationship, where she ended up having to borrow $10 for petrol just to leave the relationship.
But now, at 51, she has achieved financial freedom through property investment and is in a happy relationship with six kids.
She and fellow property investor and founder of Rethink Investing, Mina O’Neill, shared their stories with Yahoo Finance.
Cash-flow, renovation or capital growth
There are a few ways to make money through property: a positively geared property which delivers income through rent, a buy, flip and sell strategy which sees the investors improve the home and its value, and a capital growth strategy which involves buying a well-priced home and sitting on it as its value grows, Metropole national property strategy director Kate Forbes said.
According to Forbes, the safest strategy is to buy and hold for the long term capital growth. This is the strategy Sweeney followed, but O’Neill has a slightly different approach. She focuses on achieving passive income and capital growth through her positively geared commercial and residential properties.
O’Neill has amassed a $20 million portfolio with her partner, while Sweeney’s first investment property has doubled in value in the last 10 years.
What’s their strategy?
“We had to make sure that our strategy focused on buying properties within five to 10 kilometres within the capital city of Melbourne, Sydney or Brisbane,” Sweeney said.
Generally, capital city home values perform better over time than regional homes. In the last year, Australia’s combined capital cities have recorded a median value increase of 11.5 per cent, while regional homes have grown 8.7 per cent.
She and her partner leveraged their super fund, which has also doubled in value now.
“We always wanted to have high demand in areas where there were owner-occupiers - where people actually wanted to live and not the bargain basements,” she said.
She’ll look at one or two bedroom units but is wary of buying brand new.
Sweeney uses a spreadsheet to track costs, growth and the benefits of investing in certain areas.
However, she says the biggest thing she did was reshape her relationship with debt. She needed to understand that not all debt was bad.
Instead, debt for a home that is growing in value she now considers “good debt”, as opposed to the “bad debt” of credit cards or car loans, as that debt isn’t working for you.
But when it comes to making the big decisions, Sweeney’s strategy is to ask for help: she has surrounded herself with a financial adviser, a good accountant, strong property managers, legal advice and a buyers’ agent.
“We’ve got a buffer of people around us while we get on with our working jobs and that’s helped us. We’ve also had quite tight control over our finances, in the sense that building up our buffers was one of our big assets,” she said.
“So we’ll talk to our buyers’ agent and property strategist to work on which states we should move to [in terms of investment].”
O’Neill, who runs a business helping other Australians invest in property, has a different strategy.
She focuses on commercial property and residential properties with granny flats or duplexes.
“I look at how much the property will put back in my pocket after looking at my expenses, so I’ll look at how much my outgoings are, how much my mortgage repayments are and I have a standard of only investing where yield is 5 - 6.5 per cent,” she said.
Yield is a measurement of an investment’s future income and is usually calculated annually as a percentage of an asset’s cost or value. Yield is based solely on rental income, while a return includes capital gains.
To calculate yield, deduct ongoing costs including the costs of vacancy from the investment’s annual income.
Or, as realestate.com.au lays it out: gross yield = annual rental income (weekly rental x 52) / property value x 100
And, net yield = annual rental income (weekly rental x 52) – annual expenses and costs/ property value x 100
Medical and industrial properties draw Mina’s eye the most when looking for commercial properties because, as she noted, medical firms are unlikely to change location or close down frequently.
The filtering process is significant, but O’Neill said that she’ll check the comparable sales in the area for similar properties to see if they’re buying at a good rate.
She also makes sure she has a strong understanding of the rental market in terms of how long it would take to find a new tenant.
“I do my research really, really well to make sure that I tick off all the boxes to make sure I am able to invest.”
She uses resources like RP Data to get a gauge of the area and will generally look at the infrastructure in the region, the unemployment rate and the risks associated with it, along with how fast the area is developing.
Investing in a pandemic
Sweeney is holding her properties and relying on having bought in the right places.
“Not every property is going to drop by 30 per cent, there’s no doom and gloom in there. And as long as we get the right property in the right spot, it will look after itself,” she said.
Forbes said that while Australian property has taken a hit, it’s largely been “very resilient”.
“We haven’t seen any large drops… but the question is where do we go from here? Certainly there are a number of forward indicators [like auction clearance rates and building and mortgage approvals] pointing to a decline of 5-10 per cent,” she said.
But her advice for buyers was clear: don’t just buy a property because it looks like a bargain.
“You make your money when you buy but not because you got it at a cheap price, it’s because you bought the right asset that’s going to perform for you in the long run.”
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