For Val Garma and his wife Senka, a smart investment strategy has positioned them perfectly for an early retirement
In 1965 a nine year old migrant boarded a ship bound for Australia. With his parents, younger brother the young boy left communist Yugoslavia with little more than a suitcase and burning desire to succeed in his new home.
Little did he know that a few decades later he would be embarking on a four month European holiday with his wife, celebrating their 34 year wedding anniversary and his early retirement.
Now 54, Val Garma recalls his arrival like it was yesterday: “We came on the cruise liner like all the migrants in those days. We came with nothing; we pretty much started from scratch.”
The family settled in the Melbourne suburb of North Fitzroy and it wasn’t long before Val’s father had also found a stable career.
“My father worked for Ford pretty much all his life, from the day he arrived until the day he retired,” he says.
When he was about 17, Val began to notice a man in the neighbourhood who would drive home from work in a two-door, sporty Ford Landau, dressed in a suit and carrying a briefcase.
This image of success captured the young Val, whose curiosity got the better of him.
“One day I just went up to him and asked him what he did.
“He said ‘I sell houses and land’ and I said ‘Oh really, do you get paid for that?’”
“‘Yes’ he said, ‘very well.’”
The spark had been ignited and Val’s passion for property started after that defining conversation.
Not only did Val forge a career in real estate, he has personally bought and sold over 23 properties in the Melbourne area, one of which resulted in a $100,000 profit within six months.
In 1979, by the age of 21 Val married to Senka, who he met while on an overseas holiday with his parents.
“I was about 18 when we met. We started writing to each other and a couple of years later she came to Australia from Croatia on a fiancé visa,” he says.
With financial help from his parents newlyweds purchased a $40,000 home which they paid off in just two years. This was the first and only time Val had assistance in building his property portfolio.
Always thinking of the future, Val says he and Senka didn’t want to rely on a state pension and the only way to do that was to save and invest.
“We did it on a salary. We did it by living below our means – which a lot of young people today can’t seem to grasp.”
Val and Senka bought their second home with a bigger mortgage in 1981. This time the property was $80,000, twice as much as their first home.
“The dream was always to have a big house with a pool, a double garage and a billiard room,” Val says.
Having achieved the first milestone of home ownership, Val now set his sights on building the foundations of his property portfolio. In 1986 Val bought his first investment property – a move that didn’t go as smoothly as he had hoped.
“We had terrible tenants into our third year of ownership. They trashed the place and left us three months in arrears.
“There was no such thing as landlord insurance back then,” he says.
The bad experience only strengthened Vals resolve and he decided that he would have to educate himself on investing. Until then, he hadn’t really thought of property as a means of creating wealth.
“I bought a lot of books and DVDs and went along to seminars.
“The books that really changed the way I thought were Rich Dad, Poor Dad, The Cash Flow Quadrant, Think and Grow Rich and The Millionaire Next Door.
They are all the books I still go back and refer to,” he says.
With a greater depth of knowledge Val set out to develop a strategy, which involved creating a time frame and mapping out his goals.
Val also balanced his property investment strategy with a sizeable share portfolio.
The plan was to be self-funded with a passive income by the time he was 55 – and he’s been pretty much spot on.
Val’s buying strategy has been to mostly stick to properties in the inner suburbs of Melbourne, within 10Km of the CBD.
He has purchased properties in Carlton, Albert Park, Port Melbourne, South Yarra and Hawthorne.
Striking a balance between investing for growth and investing for rental returns was the key to a successful buying strategy.
“If you solely invested for growth then you had cash flow problems,” Val says.
“It’s very hard to find a property that gives you both. You’ve got to try and divide it between properties.
“We discovered units gave us a better income but not as much growth whereas houses gave us better growth but not as high an income,” he says.
His strategy included designating new and old properties to be used for either growth or income returns.
“New properties tended to give us greater income and generally the older established period homes were bought for growth,” he says.
He is also partial to using renovation to add value; “One third of the properties I’ve bought I renovated, rented and then sold.”
A safe strategy was also employed when it came to financing.
Val initially decided to borrow through three banks to avoid cross-collateralisation. He and Senka weren’t partial to the idea of using one lender.
“If something went wrong, they would have control of all of the properties,” he says.
Once they had a large enough portfolio they switched all finances to Westpac Private Bank which enabled them to have a line of equity without the hassle of processing an application.
“When we became private bank borrowers it was really a question of them looking at our situation, our equity, me telling them what we wanted to buy and then they’d approve it,” he says.
For investment purposes, Val always uses an interest only loan. This allows him to manage repayments more efficiently, with the option to service a further loan down the track.
A good accountant and financial planner are also essential components in the success of his investments.
“We’ve had a financial planner who basically sorted out all of our retirement planning.
I’d recommend for anyone to see a financial expert,” he says.
Keeping an eye on the market and having the ability to sniff out a bargain have meant that the rest of Val’s buys have turned a considerable profit.
Often the best deals have come accidently, with Val stumbling upon some valuable lessons in the process.
One wintery Saturday in 1999 Val and Senka went along to an auction at Albert Park. Val remembers the state of the place when they arrived.
“The property was filthy and stank so bad that my wife couldn’t even stay inside, but it was 50 metres from the beach.”
The two-bedroom flat needed a complete renovation.
Once the bidding began, Val put his hand up at $375,000 and next to no competition he snapped up the property for much less than expected.
Later that day, they went to another auction. Again there were no buyers due to the weather and Val was able to pick up another property, his second of the day, for $171,000.
“It was too good a deal to pass up,” he says.
The unexpected haul boosted Val’s portfolio and earned him some valuable bidding tips.
“Go on the worst day possible, during the footy season, and go for the ‘humpty dumpty’. It always shocks me that people sell these properties without spending just a bit of time and money fixing them up,” he says.
The first flat of that day was renovated for around $20,000 and turned over in six months for $500,000, netting Val a very handsome profit.
Taking a hit
But it hasn’t all been plain sailing for Val and he has learnt that not every investment is destined to turn a profit.
In 2003 Val bought a one bedroom apartment off plan in Carlton for $285,000.
“It was during the early 2000s when there was a swag of apartments being sold off the plan, and of course two years later there was a swag of them hitting the market,” he says.
Unfortunately Val ended up selling the unit at a loss and since then he’s been quite sceptical about buying off-the-plan.
“If you’re thinking about buying an apartment off the plan, unless there’s something uniquely special about it, don’t buy it,” Val says.
The next step
At the moment Val and Senka have been concentrating on reducing the size of their property portfolio in preparation for retirement.
“In the past five years we’ve been working on a plan to sell most of our properties and pay out our loans and put the proceeds into our super fund.”
They’ve also moved from Melbourne to Rye on the Mornington Peninsula where they’ve made what was once their weekender into their principal place of residence.
“It’s quiet and peaceful, we can go for walks on the beach, play golf and there are lots of wineries,” Val says.
While the pair is focused on reducing their debt they can’t help but continue to play around with property a little.
“We’ve been doing a lot more buy, renovate, sell, just to keep ourselves busy,” he says.
Looking back Val is more than glad he stuck to his guns and continued investing.
Val believes that there is only so much you can do with the income you generate from your own personal exertion.
“An asset, growing in value each year, is like someone else working for you.
Their wealth building strategy has filtered down to the next generation and, like Val’s father before him, he has help their two daughters kick start their property investment strategies.
“For each $1,000 they invested into shares I offered to match them and once they had enough for a sizeable deposit I encouraged them to buy property,” he says.
His eldest daughter is now on to her fourth property while his younger daughter is already onto her second.
“They’re doing very well,” he says.
And as for Val’s retirement goals, is he still on track to retire at 55, as planned? He sure is.
“I’m planning to retire this year, once I turn 55. That was always my strategy.”