Having no cash on hand, Todd Taylor turned to his super balance in order to crack into the property market. But one big mistake almost stopped his property portfolio in its tracks.
“I bought my principal place of residence 22 years ago and I'm still living in that same house. For a long time I was relatively happy just working to pay off my mortgage, but around five years ago I began to develop an interest in property investment.
I could see that it was a way of creating some real wealth in the background, without having to actually work for it. So about four years ago I went to a property investment seminar and found out that you could purchase an investment property through a self-managed super fund (SMSF). This was appealing to me as I didn't actually have any cash available for a deposit, but I’d recently discovered that I had a whopping $170,000 in my super account.
I approached my brother-in-law, who was a financial adviser, and asked him if setting up an SMSF was achievable for me, to which he said yes.
I went searching for the property and the broker, and I did all the groundwork and bought that first investment property. I ended up using $155,000 as a deposit on that property, as well as $4,000 setting up the SMSF (making for a loan-to-value ratio of around 50 per cent).
I held it for about 12 months before I decided that I wanted to buy more, and also that I’d made a massive mistake.
By purchasing through an SMSF, I’d restricted myself from accessing any equity from the purchase. I’d also chewed up a whole bunch of my super by putting down an unnecessarily large deposit and I’d been short-sighted in only targeting one property purchase.
If I knew what I know now, going back to that first property that I bought in the SMSF, I wouldn't have put as much money into it. I would have actually bought two properties instead of just one, to maximise the money that I put into them and maximise the capital growth. It's better to have capital growth on two properties than one. And that's another restriction: that the only way I can go and buy two now is to sell the one I've got.
Still not having any cash available to me, but desperate to get my portfolio expansion back on track, I found a company that would help people to buy investment properties using the equity out of my own house.
When I found a Sydney-based buyer’s agent named Zaki Ameer, I spoke to him about the situation I was in and how I wanted to buy more property, and I told him how much I owed on my house, and how much I thought it was worth.
He told me that wasn’t a problem and that we could work from that. I was able to withdraw around $220,000 and that was the deposit, and all the expenses in purchasing four properties. He found the properties for me in Western Sydney, which was an area that I wasn’t familiar with then, having always lived in Newcastle, NSW. Within five or six months I bought four houses out in Western Sydney.
It turned out okay in the end, but if I’d done my research properly and figured out that an SMSF purchase may not have been the right option for me, or that I could have approached it in a more educated way, I would be even further ahead now.”