In 2015, Eric Brown found himself stuck with an investment property in a mining town which cost him $12,000 a year to hold. Two years later, he’s applied the lessons he learned to move on to more sophisticated wealth creation strategies and continue advancing his property investment journey.
The property investor still holds the property as of date, and its value has already gone about $100,000 less than what he purchased it for back in 2007.
Like many property investors who have decided to take the risk and invest in regional areas, Eric admits that he thought he saw benefits from mining flowing into the Bowen market as well as its surrounding areas.
He shared: “All the workers were supposed to be fly-in, fly-out, [and] they were supposed to use Bowen as their base. That didn't happen [because] they are building camps on the mine so that all the workers actually [stay] out there.”
“The selling agent sold me all these dreams and promises and the upgrades [but] none of that actually eventuated. It was a lesson learned, a valuable lesson learned, but I'd lose too much to sell that now.
“It's still got the potential to put 11 units on that block up there, so once that does get going a little bit, there will be some upside in that. But I've just got to make sure I can handle the pain,” Eric added.
The property investor shares all the “scars” that his property portfolio acquired throughout his journey, how it has helped him grow as an investor, and the big role that his wife continues to play in this venture:
Aside from its potential upside, why do you still keep the Bowen property?
Eric Brown: Just to remind [myself that I’m not bulletproof] … You learn a lot of lessons from your mistakes … I keep looking back at that one.
Are there other mistakes that have made its mark on you?
Eric Brown: The other one up at Shore Bay was the other dud that I ended up selling … for $2,500 more than I paid for it after about a period of 8 years.
That one was the dream. The battle-ax split the block and battle-ax block can have some holiday letting up there and we found that, as we tried to holiday let, it was booked every time we wanted to get up there … There's a hundred other people trying to use the property at the same time.
So, then we went back to a long-term tenant and … the socioeconomics of the area weren't that good … They skipped a bit of rent and then I had a few arguments and they wouldn't pay their rent and had to take them to the tribunal—[it was] problem after problem, basically. [It was also an] old house, [that needed a] lot of maintenance, and the rental terms weren't very good. I didn't see any growth at all and [there] was no yield.
Basically, no yield, no growth, no good.
Are you happy with the selling price you were able to set?
Eric Brown: [The price] doesn't take into consideration all the costs that I had to maintain that property over time.
Why did you let go of the Shore Bay property and decided to hold the Bowen property?
Eric Brown: I probably would've got rid of both of them if I could but I think the $100,000 loss for Bowen ... I can leave that in the back pocket and as long as I can fund that cash flow deficit, then that eventually ... will come good. If I sell it right now, I [would] lose my $100,000 plus everything else. I'm happy to sit on that one.
The thing with Shore Bay was if I can unlock my deposit money, [and] even if I sell it for the same price I've made it for—I had a hundred grand deposit down on that—what could that money have done for me over 10 years in a different market? It's embarrassing to look back and think, "Wow, it could've been amazing for me." So, the decision was, let's unlock that, cut my losses, walk away and then reinvest that money somewhere where it will make a bit of a growth.
What did you do with the money you earned from selling one of your properties?
Eric Brown: That went into the development of Ainsworth Street ... This is our principal place of residence which was converted from a one-bedroom into a four-bedroom. Eventually, the plan will be to move out of that and then to use that as another investment tool for us, which will yield really well, too.
What else have you acquired since that property?
Eric Brown: We also sold the Botany property … Did pretty well out of that, and we've used that money to purchase a commercial property … in Lilyfield. It's [a] zoned residential but [the] current use is commercial.
Do you agree with keeping “scars” in one’s property portfolio?
Phil Tarrant: [Eric has] got a story of some major innovations. [He] dropped $300,000 on a reno. That's a big reno in anyone's language, that's a major structural renovation … And now, [he is] moving into something which is even [more] next-generation—the conversion of this warehouse [into luxury apartments].
[He has] got some scar tissue which probably helps [him be] able to go into this with all eyes opened, understanding that it's not always easy … I'm the first to say it on this podcast, that if you hear these stories about people who are becoming bazillionaires overnight through property, it's either highly risky or it's just not true.
Are you naturally a risk-taker?
Eric Brown: I do have quite a high appetite for risks ... My thing to make me a better investor is to try and minimise that a little bit and try and pull myself back … Lucky enough, my wife, my partner, sits on the other side of the risk profile. We sort of balance each other out.
I'm quite aggressive and I want to add value. I'm in the game, I'm in[to] commercial building, so it's a little bit easier for me than the average Joe, I guess, because I've got access to trades and skilled people that can help me with this process. But, yeah, if you … let me go, I'd be … like a dog at a bone … My wife's kind of holding those reins back … [She is] the voice of reason and the balance, yeah.
What would be your final advice for property investors?
Phil Tarrant: A lot [of] people invest in [a] partnership, whether it's husband and wife or mates or whatever it is. Typically, you have two different ends of the spectrum—someone who's very risk-averse and someone who's quite happy with a certain element of risk—and you typically get a nice, neutral playing field where you get the benefits of both.
Sometimes, one can outweigh the other and that's when … people find themselves in a bit of trouble.
Tune in to Eric Brown’s episode on The Smart Property Investment Show to find out how to balance a high appetite for risk, as well as the power of buying at the right price and the challenges that property developers may expect to face in the future.