The importance of knowledge and the ‘X factor’

How did you start your property investment journey?

John Pidgeon: Property for me was always something that I had a passion for… I could touch it and feel it, and everyone needs one to either own or rent or live in, so I started that from an early age—came straight out of uni[versity], at 21. Back in country Victoria, I needed 10 per cent on my purchase of 60 grand. We got into the market for, basically, six grand, which is not a lot back then but… that kicked us off. Within two years, it had pretty much doubled in value.

No expertise on my behalf, it was just getting in the market because I love property and love the idea of doing renovation on something.

What was your first property?

John Pidgeon: It was a three-bedroom house on a reasonable-sized corner block—always like the idea of a corner block [in the main town]... Walking distance to everything—it had great rental potential… We bought it for $62,000, I think, and it was already renting at $110 a week. We’re talking about 10 or 11 per cent yield straight off the bat.

Traditionally in country areas they don’t grow at the same rate as, maybe, the more in demand city areas, but for me at that time, it was perfect. It served as well. We got some growth as well.

Do you still have it?

John Pidgeon: I actually sold it when I saw double-digit growth, then I went and bought my business.... I went back there recently… It was probably valued at around $220,000 or $230,000, and that was [bought] 20 years ago.

When did you decide to jump back to property investment?

John Pidgeon: I was a trained PhysEd [Physical Education] teacher and I was teaching for three, four years… I looked at the older teachers in the staff room and 30 years on, that’s me if I [continue]. Do I want that? The answer is probably no.

Fitness was always my passion so I thought I’ll go out and start my own fitness business. That actually took me to Adelaide and I ran my business there for, give and take, 10 years… Back then, I suppose my education level was pretty limited around that property investing— still, it was always [my] passion, but business [became] my focus.

At the latter end, probably 2008, [after] a five-year lag where I didn’t buy anything, I decided to buy a block of land and build in Adelaide. Again, [I] got some pretty good growth in the initial stages of that, [in] the first couple of years, and [I] got some equity out of that too, then, [I bought] another block of land in Adelaide as well. That’s when I [came] across… one of the best mentors that I’ve had, who I still use today from time to time. He advised, ‘Don’t go and build again in Adelaide because the economy is starting to slow a little bit. Take your money to Sydney.’

How did your property investment journey go in Sydney?

John Pidgeon: We got into Sydney by the end of 2011. When you look at the property cycle, it was, more or less, perfect… With my limited knowledge, it was harder to get finance back then. In my mind, as a business owner, I needed something that I believe[d] to be high yield and at an affordable price point.

I bought a four-bedroom older house in Tregear… for $240,000. Again, that was renting straight away at $300 a week. The yield was quite strong and, obviously, for the next two or three years, that performed pretty well. We sold down on that to buy our principal place of residence on the central coast. That’s when marriage and kids sort of started to take off.

What role did your mentor play in your journey?

John Pidgeon: [The Tregear property] pretty much doubled in a span of three years… I got some good advice to go and buy in Sydney. To be honest, I would never have done it… Traditionally, that’s what most people do…

If I had continued to buy in Adelaide in the last ten years, then I’ve had little to no growth in that time. That was probably the catalyst for me taking ownership of what I was doing and understand the market more and spend a lot more time researching on becoming, not a full-time investor, just a sophisticated one.

Did you eventually venture out into other markets?

John Pidgeon: [We] sold a block to then buy another property in Brisbane and kept the other one in Adelaide… [Then] we started to buy local on the coast, as well as get into the Brisbane market.

What were some of the most important lessons you learned?

John Pidgeon: Obviously, emotion should never play a part. I think understanding the key drivers of why you’re investing in that particular area—you get your recommendations, but you’ve got to analyse it for how it’s going to fit in your portfolio, and that’s never going to be the same as the next person. Then, it comes down to affordability.

I’m actually in the game of property coaching at the moment and I’ve met a lot of clients who want to buy what their friends bought, but the yield doesn’t stack up for them because of their income differences… It’s completely the wrong purchase… You can see why a lot of investors get it wrong—purely because they don’t analyse their own situation.

[It is also important to] have a really good combination of cash flow and capital growth. While we can’t determine how capital growth’s going to play out, I think if you’ve got a reasonable cash flow in your portfolio instead of going straight to those high blue-chip properties, then you’ve got a reasonable balance in the event of any downturn in your life.

Lastly—[don’t] sell too quickly… We got our $50,000 or $100,000 out and think we’re rock stars only to realize in the next 10 years that it doubles again… In the early days, without that real knowledge, it was, ‘Okay, we’ve seen a gain, let’s move it on.’

How would you describe your strategy now?

John Pidgeon: We might purchase one property a year to accumulate using the equity from the existing portfolio, [and] look for something a bit more strategic in the way of mini-developments or things like that… I think, if we do our research well, we can make some really solid inroads through mini-developments like duplexes—adding value to a piece of land.

Phil Tarrant: [Essentially], look for properties with X factor [that can let you] do something more and different other than just buying and holding.

Tune in to John Pidgeon's episode on The Smart Property Investment Show to know more about his experience buying and selling in different markets, how aligning himself with a mentor helped steer his journey in the right direction, and how striking a healthy balance of cash flow and capital growth has enabled his portfolio security in the face of a downturn.