For Sydney local Biagio Colangelo, the WA property market is proving to be a goldmine.
Biagio Colangelo bought his first unit in Sydney’s Parramatta, at the age of 25. However, it is in Western Australia that the owner of a now multi-million dollar portfolio is creating his wealth.
His move into the WA property market, primarily in Port and South Hedland, has turned out to be his best investment strategy yet.
With six properties in the resources state now under his belt, the 38 year-old is bringing in close to $13,000 rental income per week.
“I’ve got a $7.5 million portfolio and I’m earning $12,820 a week,” he says.
Where it all started
The WA market first caught Mr Colangelo’s eye at the end of 2008, following an uninspiring period of investing in Sydney real estate and a high-octane affair with the share market.
“I bought my first investment property in 1998,” he says. “Coming from an Italian background, my parents always told me to buy property.”
Over a four-year period, he acquired four properties in the Sydney area but then decided to draw the line on that investment strategy due to the heavy land tax costs and some disappointing returns.
However, Mr Colangelo had always dabbled in the share market and it was at this time that he switched tack and decided to concentrate his investment efforts on equities.
He started with a share portfolio of $60,000 but this soon grew substantially.
“At one stage, I had a $3 million portfolio,” he says.
But as the share market grew more and more volatile, Mr Colangelo found that stocks were proving to be too stressful a road to wealth creation.
“So I said, that’s it – I’m going to pull my money out.”
Mr Colangelo turned his eyes back towards real estate, although he was now reluctant to buy in Sydney.
“I was reading a magazine and I saw an article on Ryan Crawford of Crawford Realty,” he recalls. “I couldn’t believe it: he had over 20 properties and was turning over $1.7 million in rent. I thought, geez, I want to do that!”
Following a couple of phone conversations with the real estate group, Mr Colangelo – in true pioneer form – booked a flight to Western Australia.
There and then, in February 2009, Mr Colangelo made his first WA purchases: two properties in Port Hedland and one in South Hedland, neighbouring centres around 1,700km north of and home to Australia’s largest exporting port.
Since then, he has acquired a further three properties and is certainly not looking back over his shoulder.
Better returns, less land tax
Mr Colangelo has preferred investing in the WA market rather than in his home town for two key reasons: better rental returns and lower land tax obligations.
While the asking prices for his properties in WA were all around the $1 million mark, the rental income they provide has made that initial outlay more than worth it, he says.
In fact, Mr Colangelo’s six WA properties deliver him $11,800 in rent per week ($613,600 per year), compared to just $1,020 per week generated by his three remaining Sydney properties.
“It takes three Sydney properties to make $1,020 but the lowest [property in WA] is paying me $1,500 a week!” he says.
This rental income also delivers him a positive cash flow.
“After paying everything, I’m making about $4,000 a week – after loans, insurance, maintenance, the works,” he explains.
But as well as the opportunity to achieve strong rental returns, the other key benefit of investing in the WA market is that the tax costs are much more affordable than in New South Wales.
In Western Australia, for his six properties Mr Colangelo only has land tax obligations of around $400.
“On the four properties in Sydney I was paying over $7,000 in land tax,” he says. “It’s something people don’t always look at but land tax is a killer.”
He is also confident that capital growth will be superior in Western Australia.
“I bought my unit in Parramatta for $148,000,” he explains. “I spent $40,000 in renovations, plus stamp duty, and sold it for $320,000 after 12 years.
“Yes, I made a profit, but how boring! And I had to pay capital gains tax. After 10 years of my life, that’s very dull. I want to make money!”
That’s certainly what he seems to be doing now, and not doing it too badly either, with the three properties he bought in 2009 already increasing by 14, 16 and 20 per cent.
“Things have gone downhill in Sydney, but in Western Australia it’s going strong,” Mr Colangelo says. “I believe the area is going to be untouchable in the coming years.”
When it comes to financing, Mr Colangelo says he never borrows more than 80 per cent of a property’s value and always pays principal and interest on his loans.
Being in a positive cash flow position is always valuable when it comes to securing further finance, he says.
“You’ve got to show you’re making a good return and if you’ve got a positive property in your portfolio it does help you borrow more money.”
Investing away from home
Still based in Sydney, Mr Colangelo admits he was initially cautious about investing in WA – an area he did not know. However, going west with his investments and seeing for himself what was taking place has assured him he is on the right track.
“As soon as you go there you get a sense of what is going on,” he says. “At the beginning, I did freak out a bit because you’re taking out big loans in a different area, but now of course I’ve seen everything. I’ve seen rents increasing over time and I believe that will keep going.”
For example, the weekly rent for his Port Hedland Pretty Pool property has risen by $200 since he purchased it in 2009.
However, to succeed in a new property market, especially one thousands of kilometres from home, Mr Colangelo says research and due diligence are crucial.
He is also careful to ensure his property is being rented out to good tenants and that everything is in the hands of a good property manager.
And it should come as no surprise that Mr Colangelo is keen to continue investing in WA.
“I’m going to keep buying there,” he says. “For me, with what I know, I’d just rather buy in an area that performs well and I don’t see this area going down any time soon.”
The goal is to increase his weekly rental income from $12,800 to $20,000, creating a $1 million annual rental income.
He also hopes to literally go west himself in the not too distant future: “I do eventually want to go and live there, to look after my properties and have a good life,” he says.
“Everybody I have met there is positive – they’re earning good money and on a real high. It’s the way to go.”