Stuck with an under-performing first purchase, Nathan Firth turned to a more hands-on approach to property investment.
“My first investment property was easy and hassle-free. I bought it through a buyer’s agent after deciding to look at property investment as an alternative source of income. A new development in the Queensland city of Rockhampton, it came with a two-year rental guarantee and a furniture pack, sold by the developer, that would help the apartment lease quickly.
In terms of effort, it required almost nothing on my behalf other than stumping up the deposit and keeping up with the mortgage repayments. The property even came with an onsite manager who would take care of any issues – handy when you’re 2,000 kilometres away.
The deal was very much a traditional purchase. I paid my stamp duty, paid a similar price to almost everyone else in the block, and didn't really negotiate on the purchase price.
I relied on the buyer’s agent’s word that the Rockhampton area was set for great growth and left it at that. I was guaranteed $600 a week for the next two years – what more could I hope for?
But targeting an easy investment doesn't exactly give you financial freedom. After settling on that first investment, I came to the realisation that I wanted to be transitioning out of my job and replacing my income with that generated by my investment portfolio.
Rockhampton didn’t take off like it was meant to, and two years later values haven't shifted at all. To build my portfolio quickly and be able to rely on it for income I need decent rental yields, but I also need good capital growth to give me equity.
After purchasing my first investment I enrolled in a lot of investment courses and started to get a better idea of what I needed to do to build my portfolio fast, which turned out to be the complete opposite of the mistakes I’d made with my first purchase.
I ended up buying a block of land, negotiated under market value, just down the road from where I live in Beechworth – relying on some of the tactics I’d been taught to purchase without much of a deposit.
I then set about building two houses on the block. One was a four-bedroom house, with an ensuite, al fresco dining area, garden shed, sun deck, driveway, solar power, solar hot water, ducted reverse cycle air con. The other was a three-bedroom, with the same specifications.
I’ve managed to build equity in them already – something I failed to do in Rockhampton. If I was to sell the bigger house, I would still owe $413,000 and the person who did the valuation referred to one just down the road that sold for 517,000 and was lower spec – so there’s got to be at least 100,000 equity in that house. In the three-bedder, I'm anticipating at least $70,000.
That’s not to say the deal was all smooth sailing. I had to be crafty with the purchase process, and spent a lot of time researching the deal.
I also had the stress of watching the houses under construction. They were built by a professional construction company, but things still went wrong here and there. I was there every day. There were small things like the bathroom window was too low, the wrong hot water service was delivered. Just little things like that, which would have gone ahead had I not been there to say otherwise.
The other issue with this investment is that it’s not truly positive cash flow. They’re positive cash with depreciation benefits included, but they’ll only provide a yield of about 5.2 per cent, and I want to get up into the seven to eight per cent range without body corporate fees, so that it’s actually real cash flow.
There are upsides and downsides to every investment purchase type, as I’ve discovered with my first two. The aim now is to start investing in properties that offer a good balance of the equity gains and rental yields I need to build my portfolio and retire early."