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After 10 years in the business of creating wealth through property, policeman-turned-property investor Geoff has successfully created an impressive nine-property portfolio by overcoming obstacles along his way—including the Global Financial Crisis (GFC) that struck nations all across the world.
The property investment landscape was undeniably very different from the way it is now, especially in terms of interest rates issued by major banks such as the Reserve Bank of Australia (RBA), according to Smart Property Investment’s Phil Tarrant.
In February 2008, the RBA cash rate is at 7 per cent, then it went up to 7.25 per cent in March 2008, where it held up almost all year until it went back to 4 per cent by the end of 2008—the fluctuation that marked the GFC.
When Geoff bought his principal place of residence in North Para Meadow for $226,000 in July 2008—the first property in his portfolio—he was paying a 9.25 per cent interest rate.
“We got in with the First Homeowners Grant … [so I have] 100 per cent finance, right … ? In the end, for me to get into that property, it cost me $200 [in cash] … as unbelievable as it sounds,” he said.
By that time, he’s only been a policeman for four years, which meant he was only eligible for $450 worth of loan per week.
The property investor shared: “I only have $250 for the rest of the week … I remember going to the service station and I'd have to put $20 in the car for fuel and I didn't go out for three months, and I didn't buy any new clothes for nearly two years—that's the sacrifice you have to make.”
When the GFC hit Australia around September, Geoff didn’t have any idea about it, just like many others. He was with St. George Bank when the interest rates came down.
According to him: “It was a variable … Even then, I didn't understand variable rates and lock … I just remember, every month, there'd be a new letter from the St. George saying ... ‘Your interest rate has now gone down.’ "
“[I thought] it sounds all good, 100 per cent financed, but then I was getting smashed week by week—[the house] had an old bathroom, and the place didn't smell that nice, [and] it was on the main road, [things like that].
“Through a little bit of luck, [though] … that's been the cornerstone, the one that's given me the [jumpstart],” Geoff shared further.
Since buying the North Para Meadow property 10 years ago, the property investor has seen it double in value—from $226,000 to $520,000.
He has also been able to extract equity from it around three times to purchase more investment properties.
After purchasing different types of properties over the course of 10 years and seeing them grow, Geoff and his wife are currently just sitting on their portfolio to make way for several life changes, like the birth of their new baby.
They are also currently adjusting to the new policies set by the Australian Prudential Regulation Authority (APRA) regarding interest rates. APRA recently put in some requirements for lenders to slow down the rate of lending to property investors and “change the way in which they look at the [investors’] serviceability”.
Smart Property Investment’s Phil Tarrant explained: “Rather than 3.5 per cent [or 4 per cent ... they're looking at servicing loans at [around 7 per cent] … [to make] sure that there's plenty of fat in people's ability to borrow money and ... try and take some of the heat out of the market and slow down price growth.”
“It's a little bit more difficult now to get financed because you [can] hit a … a serviceability threshold,” he added.
Despite the temporary halt in their property investment journey, Geoff continues to look at the markets to see which areas will have the potential for growth in the future. Until he can get financing again, he and his wife will just have to “wait and see”, which is not at all a bad thing, according to Phil.
Geoff said: “We'll just hold on ... I think we're in a bit of uncharted territory in terms of ... lending and all that sort of stuff … I think we'll just ease up for a bit and we'll just hold off.”
“But, in saying that ... as you know, you've got to manage the portfolio, too. So, that's a job in itself, really. And I don't mind … looking at different options—there's always something there that can be done whilst it's there now. You don't always have to be buying,” he added.
“It's okay to sit back and take a breath, right … ? These requirements aren't always going to be there on behalf of APRA, [after all],” Phil concluded.
Tune in to Geoff’s episode on The Smart Property Investment Show to know more about the challenges he and his wife faced early on by rentvesting after they received a termination letter right before their baby was born and how they managed to overcome this situation and achieve their goals.