While he has successfully built an 11-property portfolio, Eric Brown admits that there were moments when he lost motivation in continuing his property investment journey—particularly when he made bad decisions that led to bad purchases and ultimately slowed down his progress as an investor.
Before being able to determine the best investment strategy for himself, Eric navigated his way through his journey by doing it all on his own.
"I was doing it on my own, [and there are] definitely peaks and troughs in that. I made a couple of bad decisions along the way. Mining town in Queensland in Bowen hasn't done particularly well for me and now, I can't get rid of it. It's costing me, say, $12,000 a year. I'm lucky enough that the rest of my portfolio is covering that cost but I'd be doing a lot better if I didn't have that on my portfolio. It was a mistake and I learned a lot from it," he shared.
According to Eric, surrounding himself with people on the same journey as well as people who have certain experiences and expertise have helped him build his confidence to move forward in his business of creating wealth through property.
The property investor said: "Definitely been peaks and troughs. Surrounding myself with people that are confident and on the same journey as me makes it a lot easier because you learn from their mistakes and you learn from their successes. Having a buyer's agent that I trust and a tax adviser that I trust, really gives me confidence that I am doing the right thing."
Eric shared two of the biggest mistakes he has done as a property investor, and how he was able to rise above them along the way:
When did you work out that you have made mistakes?
Eric Brown: The two biggest mistakes I've made—one, an investment in Shoal Bay... it's near Nelson Bay, on the mid-north coast of New South Wales... It's a great holiday destination. My wife and I went up there for our holidays. We had such a great time, we thought, “Oh wow! What a good spot to invest.” So we did. We bought a block that we were going to battle-axe and subdivide and put two properties on.
I was a young investor at that stage. I thought I could guarantee at least a little bit of capital appreciation over the next five years while I sorted myself out. When it came time, every year, we'd do the figures again and we'd try and work out what we'd get after we'd done the reno[vation]s, what we could sell them for and the sale price never really went up as I expected. In the end, it was just never feasible. We'd make 10 or 20 grand on that and that's a lot of risks to make 10 or 20 grand.
How did you decide to solve this problem?
Eric Brown: The way we decided to get around that property was to sell it. We sold it for the same price we bought it for. In reality, it was a loss, but another great lesson I learnt there about not relying on capital appreciation to bankroll a development.
Tell us about your property in Bowen. When did you go, “Hang on a second, this is not that good of an investment”?
Eric Brown: I got a lot of information on the suburb. It did tick a lot of boxes for me but... things changed along the way. It was a mining town and most of its industry was mining. The Queensland government was planning on putting a link between the central Queensland rail line and Port Abbot, they had a 15-year expansion program underway. Recently, the dredging of Port Abbot got overturned in the High Court. The Greens challenged the Queensland government's decision to go ahead on that. That whole project got put on hold. The property, you couldn't get rid of it.
I came to the realisation that wasn't such a good investment when I sat down with my accountant on my yearly thing. We went through the numbers and through an Excel table and actually physically worked out how much that was costing me. About 12 grand a year. That money's just going down the drain.
How did you decide to deal with this bad purchase?
Eric Brown: I decided to try and sell that. There [were] no investors in the market. There [were] no homeowners in the market. There [were] basically no buyers in the market. The real estate agents, all up in Bowen, just said to me, "Not possible to sell. I could give it away to somebody if you wanted but you'd be looking at a couple of hundred thousand dollar loss.”
I'm just sitting in that one at the moment because I can't do anything about it. I'm going to start investigating whether I can put a granny flat on the back and get a second income for it or whether I can spend a little bit of money on the property and upgrade it and get a better rent.
Briefly, describe your diversified portfolio.
Eric Brown: I've got three in an SMSF, self-managed super fund. I've got some in my wife's name. Some in my name. I've got a new vehicle that I'm going to purchase in next, an investment company. Structured a little bit differently. My accountant helped me set that up. The different entities to help me spread the load across a few different entities which help, I think. It helps borrowing.
Did it help in covering cash flow constraints due to bad purchases?
Eric Brown: My portfolio is cash flow neutral at the moment. I don't tip anything in. In fact, I get a slight positive every month. For that reason, I can afford to sit and wait on it. The Queensland government has overturned that decision again now. It's so subjective, it's so up in the air at the moment. No one can exactly tell me what's going to happen. I know The Greens will challenge that decision again. It's pretty much out of my control. I'm prepared to wait. I can fit 12 units on that site. If ever the Port Abbot expansion was to go ahead, it's potentially a fantastic upside for me. Unless that decision's made in my favour, then it's never going to happen.
If you could reverse any decision that you've made in your property portfolio, what would it be?
Eric Brown: It would definitely be Bowen. If I hadn't purchased Bowen, I'd be $12,000 positive cash flow already, [within] a year. That was the biggest lesson I learned. It is a potential for a massive upside but I think the risk is far too great.
What would be your advice for budding property investors?
Eric Brown: The thing that changed my life was actually engaging a buyer's agent who did it for a living. [He] went out and sourced property, [and] negotiated property. I struggled at the start to get my head around spending multiple thousands of dollars on engaging someone like that, but I've learned over the last 10 years that they well and truly make up the money you spend at the time of purchase by negotiating. It does add so much value to your portfolio.
Next one is... seeking out and engaging a really good accountant. The strategy meetings we have with my accountant twice a year are brilliant. It adds so much value. The value it adds is that you know where your portfolio is in any point in time. It's not a wait and see and guess how you're going.
Tune in to Eric Brown's episode on The Smart Property Investment Show to know more about his property investment journey and the lessons he's picked up along the way.