The young ones: Property investing in your 20s
You are never too young to start investing, as Sydney couple Scott Renfrew and Ursula Buckham have proved with their evolving portfolio of high-yield properties
Property is a long-term investment and those willing to wait it out will be better positioned to reap the benefits of one if not several growth cycles.
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But having the patience is one thing, having the time is quite another.
Scott Renfrew, 24 and his fiancée Ursula Buckham, 25, have time on their side. The couple has already accumulated six properties between them, a portfolio that would make even some senior investors green with envy.
As a tradesman, Scott found he could put his hands to good use when it came to property matters – plus, he has always been interested in investing.
“Being a cabinet maker, I love doing renovations and love the idea of an investment property,” Scott says.
“After watching people continually losing money on shares and realising just how quickly they can go down, how things like talk of a mining tax or something happening on the other side of the world can instantly affect your money, I decided that property was a safer option,” he says.
“With property, it has its ups and downs but as a general rule, history has shown property doubles in value every seven to 10 years.”
But for Scott, getting into the market didn’t come without its sacrifices.
While he made good use of the First Home Owners Grant (FHOG) to purchase his first property, the purchase also took some saving for as well as the selling of his beloved ute.
“When I was 19, I owned a nice new Holden,” Scott says. “I only kept it for nine months because I just couldn’t justify the depreciation, knowing I wanted an investment property. So I sold it, bought a cheaper car and kept the money aside.
“I continued to add to that money over the next two years.”
After two years of hard saving, and with the money from the sale of the ute combined with the $14,000 FHOG, Scott arrived at a point where he had a decent deposit ready. He then decided to visit a mortgage broker.
While Scott, at 21, was well on the way to achieving his dream of owning an investment property, as a young tradesman his salary would be stretched to the limit.
“At the time, I was only earning $40,000 a year and was just short of borrowing the amount I needed,” Scott says.
“I managed to get a pay rise to $42,000, which was just enough for me to secure the loan. I lived in the place for the first six months so it wasn’t an investment straight away but proved to be a good learning experience, living out of home.”
Meanwhile, Scott’s fiancée Ursula was poring over the property pages and perusing the web for an investment of her own.
Having just graduated from university after five years of study, she was now a qualified chiropractor and working full time. And being in full-time employment, she was eligible for a home loan.
“Ursula was 24 when she bought her first property, only six months after being in her full-time job,” Scott says.
Inspired by Scott’s first purchase, a two bedroom unit in north Parramatta, Ursula was keen to get into the market herself and admits she had been interested in property from a young age.
“I grew up reading the property section of the newspaper,” she says. “I loved finding dream homes or investments and trying to get my parents to move or buy them.
“When Scott bought his first property he had no intention of building a portfolio. He thought one investment was enough so that one day we could start saving for a home of our own.”
That soon changed when the couple realised how much equity can be gained from a quick renovation – not to mention the windfalls from a rent rise.
Building a portfolio
Scott bought his first property for $224,000.
Following an $8,000 renovation, however, the property rents for $350 per week, commands an 8.1 per cent yield and is valued at $305,000.
Two years after that purchase, Scott decided to buy a second, a third and then a fourth property.
“After seeing Scott building his portfolio it didn’t take long for me to jump straight into it,” Ursula says.
“It wasn’t an easy start, being a sole trader with only six months’ working history. It’s not what a bank wants to see, but I still managed to get into the property market.”
Unlike Scott’s purchase, however, which was relatively stress-free, Ursula’s proved to be quite a challenge. She bought the three bedroom, brick veneer house in Orange, NSW for $125,000 in November 2010.
“Ursula’s first place in Orange was our biggest challenge,” Scott says. “Nothing was easy and most investors would have been turned off the place.”
The first hiccup came shortly after the settlement.
“We had a call from the solicitor saying, ‘Don’t be alarmed but there is a caveat put on the house as the previous owner has gone bankrupt and had a few debt collectors chasing him’,” Scott recalls.
“Luckily, it all ended up getting sorted out,” he says. “Then it came time for the existing tenants to move out as they hadn’t been paying rent for a good three months.
“We issued them with a Notice to Vacate, so we knew when they were going to be out and we arranged time off work to go there and do a small renovation.”
Scott, meanwhile, had just renovated his second property, a three bedroom townhouse in Bradbury, NSW, which he purchased in July 2010 for $186,000.
The renovation took three days, cost $11,000 and added $50,000 in value almost immediately. It currently has a rental yield of 9.3 per cent – unheard of in most capital cities.
Three months after the purchase of the Bradbury property, Scott acquired his third, a three bedroom weatherboard house in Orange.
Back to Ursula’s property, and the day before she and Scott were scheduled to drive up to Orange from Sydney, they discovered the tenants still hadn’t moved out.
“We had taken the time off and had to go,” Scott says. “Once we got there, the tenants were still trying to pack everything up.
“We had to help them move their stuff onto a truck, which took a whole day and set us back for time, leaving only three days to renovate the whole house. We managed to get it all done though, and the new tenants are now in there.”
The renovation included a new kitchen, paint job and new carpets throughout and set Ursula back by just $6,000.
Scott’s day job as a cabinet maker proved handy, not only in the fitting and installing of the new kitchen but also in sourcing discounted materials.
With the makeover complete, the property is now worth $165,000 and has a rental yield of 10 per cent.
Ursula was now ready to go looking for her next investment.
Time-poor investors such as Scott and Ursula frequently use a buyer’s agent when scouting for property and planning an investment portfolio.
Scott bought wisely in the case of his first property, but commissioned the services of Right Property Group for every subsequent purchase – as did Ursula.
“When I first started out, I’d spend hours online looking at places and then every weekend it would be all of Saturday going to open homes and checking places out,” Scott says.
“Ursula and I have busy lives and both work very long hours, so for us to find the time to do all of that now would be very hard and would slow the whole process of acquiring more properties down considerably.
“Using a buyer’s agent also gives us more time together – particularly at the moment, as we work on our wedding plans,” he says.
Being able to save time is one good reason to use a buyer’s agent but it’s not the only one. With years and often decades of experience sourcing investments, buyer’s agents have watched the ebb and flow of the market over time.
Their experience is invaluable and they are usually more adept at picking places that are under market value and then negotiating a good deal.
“What we always try and do before we settle on a property is to buy it under market value,” Scott says.
“That way you’re making money on the way in, not waiting around for the market to move to gain equity. Buying the right kind of property is equally as important, choosing ones that will let you reach your goals – not just a place for the sake of it.
“But you definitely have to do all the figures and due diligence,” he adds.
Scott and Ursula prefer to use a mortgage broker to help them with those figures, as well as with obtaining financing for their investment portfolios.
They do not use one lender but rather, borrow from whoever is willing to lend.
Securing a loan is vital, but where it comes from is of little importance to Scott, who is more concerned about the areas in which he buys.
Picking the area
So far, the areas in which Scott and Ursula have bought have been high demand with low vacancy rates.
Orange, where they each own a property, is a mining town where money has recently been spent on a new hospital, which will ultimately create new jobs and attract people to the area.
“We have purposefully picked areas that are comparatively cheap to buy in, which means small mortgages that allow us to spread the investments over different areas, rather than buying in more expensive areas and only being able to afford one or two properties,” Scott says.
“With smaller mortgages it’s easy to keep rental yields high, which obviously helps when it comes to cash flow.”
As a rule, Scott and Ursula try to avoid negative gearing: “The way we see it, you wouldn’t own a business and keep running it at a loss for the tax benefits alone, so why should you with your investments?” Ursula says.
“We treat each property as a standalone business,” she says. “We look at each new purchase as a business transaction with no emotional attachment. As long as the figures work and it has potential to grow we’ll buy there.”
On average, each property costs $35 per week out of pocket before tax benefits, a total outlay of $210 each week to hold six properties.
A bright future ahead
Once he decided to start building a property portfolio, Scott told himself the ultimate goal would be to own 10 altogether.
That was three years ago. He and Ursula now have six between them.
“In the long term, we want to own our own house outright and also be in a position to draw an income from our properties,” Scott says.
“If we had a portfolio of 10 and kept them for 10 years and they doubled in value, we could sell half and own the other five outright,” he says.
“Then the rent of five places paying $300 a week would be $1,500, which would be a great disposable income for us after owning our own home.”
Hearing Scott speak like this makes it all sound so easy. So, what is the secret of his success?
“Buy right, buy under market value and make your money on the way in,” he says.
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