Michael Xia now has a massive 14-property portfolio, but that doesn’t mean it was all smooth sailing. Here’s what he discovered along the way.
I’ve had a frenetic couple of years of property investment. When I first started out, there were a lot of headaches.
But, as any good investor should, I learnt from my mistakes so that I could streamline my purchasing process and get out of my day job sooner.
A little over two years later, I’ve managed to exit the mainstream workforce and start my own business because of my portfolio’s success. Here’s what I learnt along the way.
1. Focusing on high-yielding properties doesn’t get you out of work
When I first started out, I wouldn’t touch properties below seven per cent. That was a strategy reinforced by the buyer’s agent I was using at the time, and resulted in me buying a property in a small town called Nambucca Heads, which is around 25 minutes away from Coffs Harbour.
The property needed a lot of work, and I ended up spending a lot of money. I purchased the house for $155,000 and spent around $40,000 on renovations, as well as a $10,000 buyer’s agent fee. Afterwards it was valued at $235,000, so I made a little bit of money but not a lot.
It’s now tenanted for $295 per week.
I would never buy in Nambucca Heads again – if I had my time again I would have purchased closer to a CBD.
The property is great in terms of the fact that it generates positive income, but it’s terrible from a capital growth perspective. It’s not really close to any fundamental drivers, people either go up to Nambucca Heads to retire or go on holidays. So fundamentally it doesn’t have anything going for it.
Therefore my opportunities to extract equity from the property and fund further purchases were limited, which basically slowed down my portfolio’s expansion and my journey to exiting the workforce.
2. Renovations accelerate the accumulation phase, but they’re not easy
Targeting run-down properties with a low-entry price point and then renovating them was a key theme of my early purchases. But it should be noted that it’s an incredibly stressful way to invest in property.
First, it’s easy to overcapitalise, like I did in Nambucca Heads. My initial budget had been $25,000, but my inexperience and limited skill set caused that figure to blow out by another $15,000.
But that wasn’t the worst of my renovation experiences. When I decided to move closer to the CBD for my next investment purchase, things were looking up. I managed to buy very well, and secure a three-bedroom Newcastle house well below market price.
I purchased the place at auction for $225,000, did a $35,000 renovation on it and had it revalued at $330,000.
That’s easily my best renovation result, and propelled me into two further purchases. But to say that renovation caused me headaches would be an understatement. This time it was more to do with my project management, and poor timing.
I bought the property in November, and didn’t take into account that the builders would go on Christmas break. So by the time that they had started, there’d been a two-month vacancy in the property and the kids who used to live in the property decided to pay it multiple visits. Knowing that it was vacant, they came back with their schoolmates and basically destroyed the place with a sledgehammer.
I was in Sydney at the time, and every second day or so I’d get a call from the neighbour or a tradie letting me know that my place had suffered more damage. That was a very stressful time, and I basically got no sleep for two weeks until they were scared off by a close encounter with the police.
3. Don’t focus on where you live – get out of your comfort zone
I’m Sydney-based, and I had two Sydney investment property from years ago that I purchased before deciding that I wanted to use investment as a career replacement. I didn’t purchase well, but even those properties managed to pick up on the Sydney boom and have generated a decent amount of equity.
So, just over two years ago I faced a tough choice. Battle to purchase another property in Sydney, or look elsewhere.
Even two years ago, it looked like Sydney was going nuts. So instead I focused on other areas. Despite the initial stumbling blocks that came from purchasing in the wrong area, and the tyranny of distance when undertaking renovations, focusing on other investment locations has allowed me to have a portfolio of 14 when realistically it could have been a portfolio of three or four had I stayed in Sydney.
After Newcastle, my last nine purchases have been in the Brisbane area, because the market and the figures add up a little more there. It’s not close to home, and it pushes you out of your comfort zone, but it’s really paid off.