（转）What I learnt out of buying 7 properties

HERO8KING

逛论坛时候发现的一个帖子，作者是华裔并且在昆士兰和悉尼买了7套投资房，然后写下21个自己的心得，我觉得很有必要转出来给各位学习一下，抛转引玉

What I learnt out of buying 7 properties

Edit - thread index:

First lesson – why you should avoid OTP
Second lesson – why you should avoid buying property with a pool
Third lesson - do your due diligence on the team members you trust and use
Fourth lesson – On the ground visit is as important as ANY due diligence
Fifth lesson – avoid buying in areas with plenty of land
Sixth lesson – investing in low socio-economic areas which almost guarantee some sort of tenant issues
Seventh lesson – Focus on choosing IPs with value add potentials
Eighth Lesson - How to select a Property Manager
Ninth lesson - why you should be extra cautious working with cash job tradies
Tenth lesson - How to effectively buy sight unseen
Eleventh Lesson - how to develop optimal offer price and cashflow forecast via cashflow calculator
Twelfth Lesson- How to negotiate purchase price with Real Estate Agents
Thirteenth Lesson - the importance of having trusted team around you
Fourteenth Lesson- A guide for NSW/VIC/QLD Buyer: Process from making an offer to settlement
Fifteenth lesson – New vs Existing, which one should I choose?
Sixteenth lesson – type of tenant requests and how to deal with them?
Seventeenth Lesson - When should you build a Granny Flat?
Eighteenth Lesson - What types of Value Add are there in a Property? (Houses)
Nineteenth lesson – What types of Value Add are there in a Property? (Units)
Twentieth lesson - What I learnt out of buying 7 properties
Twenty first lesson - CG or Cashflow Properties?

1. First lesson – why you should avoid OTP

My property journey started with an OTP purchase back in 2009 at Granville in Sydney (but it’s actually closer to Merrylands). I was young, naïve and didn’t know much back then about what I really need to do to do the research required to validate the purchase. My dad found this for me and he thinks that it would be a good fit because of the 5 years rental guarantee so I don’t have to worry about it too much. Plus the glossy brochures looked really nice! And the sales agent has a whole tonnes of research materials about the area, what the future developments are (the Stocklands mall at Merrylands was being constructed at that time) and the expected population/jobs growth at Parramatta being the second CBD.

The purchase price was $360K for a brand new 2 bed 2 bath 1 garage OTP apartment in a complex of 45 and rental guarantee for 5 years is at $450 per week. I’ve been told “it’s over 5% rental yield and easy to hold”, and I’ve done my “due diligence” based on the materials he provided and they seem feasible. Plus there are probably some parental pressure on this too (yes, Asian parents are like that, don’t want me to have too much money to spend), so I signed on the dotted line. I was 25 that year.


Fast forward to 2018, this property has:

Grown to about $500K in value, thanks to the latest Sydney boom, and allowed me to pull some equity out
Rent to-date is at $450/week
Strata has increased from $400/qtr to $800/qtr, plus there has been some serious issues with the building quality. My apartment is on level 1 (out of a total 3 levels) and couple years ago during a heavy rainfall the water had leak into my unit and damaging the carpet. To-date there is still an ongoing lawsuit which has been going on with the developer/builder for the last 3 years. And as you guessed, it’s costed all the landlord a gazillion on special sinking funds


So what did I learn out of this purchase?

Steer away from OTP as you’ll almost guaranteed to overpay for anything brand new and shiny

I’ve paid $360K back in 2009, whereas the average price for a 2 bed apartment there was less than $300K at Granville. So I’ve bought way above market median and now I understand the extra money was to cover everyone else’s profit margin (except my own!!)


Rental guarantee can be a double edged sword and most of the time it’s to make the OTP more attractive

I considered myself relatively lucky because the rental guarantee on this deal is at $450/week and for 5 years so I’ve recouped some cost back. In all honesty the agency company would’ve made a loss because they were never able to achieve $450/week during the first 5 years. But that was once off and I’ve never seen anyone else bold enough to do a rental guarantee this long – most of them only for 1 or 2 years max and there are conditions on top. They do this mostly to make the OTP property more attractive to investors because they know you’ll have trouble renting it out AND at the estimated rent (due to influx of units released at the same time), so it’s a bait to get your foot in and then after rental guarantee safe net…you’re on your own.


Quality of OTP can be shabby and costing you more to hold long term

This IP was built by a relatively renowned builder who does lots of projects out at western part of Sydney so I was quite shocked in terms of their building quality on my unit. As I mentioned above, my apartment is in level 1 and during heavy rainfall the water got from wall into both bedrooms and I ended up having to re-plaster some parts of the wall and replace the whole carpet in both bedrooms. And it wasn’t just me, other units on my level is also experiencing similar issues so clearly this is a building defect. This is another huge annoyance off for me as the OTP appearance can be brand new and shiny but you never know what was actually underneath the building structure.

What also annoyed the hell out of all owners is that it’s been 3 years and we are still not getting anywhere as the lawyers from defending side keeps playing the stalling strategy. So the owners have been forking out quite a lot of funds in the last couple of years for this law case, and hopefully we’ll get a resolution towards end of this year.


Even if you overpaid on day 1, if you hold a property long enough it will correct your mistake

Yes I’ve overpaid from day 1 on a crappy product but the silver lining is I’ve left it chugging along by itself (as rental guarantee was covering most of the outgoing expenses anyway) and thanks to the latest Sydney boom the value has gone up and I can even pull out some equity for our next purchases. I’m sure everyone makes a mistake somewhere along the line in overpaying but by holding it long term the property price will eventually catch up and correct your mistake.

HERO8KING

2. Second lesson – why you should avoid buying property with a pool


Fast forward to 2015 – we’ve pulled out equity from our Sydney properties and are now ready to go again. Being priced out of Sydney with some crazy offers being thrown around, me and my partner decided to start looking at SE QLD in particular the Logan market, as the capital investment is small but yield is high so easy to hold long term.

We’ve since found our Slacks Creek property – a highset with 3 bed, 1 bath upstairs and 1 rumpus and bathroom/toilet downstairs. Now it comes with an additional feature – a pool.

Back when I was living in Auckland the first house dad bought was a house with a pool. We enjoyed dipping in for the first couple of days, and then that was it… it then started becoming a liability as we had to continuously clean up the falling leaves and put the pump on so the water doesn’t go stale and turn green. Dad used to complain a lot about it as he was always the “lucky” one who ended up cleaning the pool despite the fact no one uses the pool at all.

And I thought I learnt something out of that. Well what did I do? I went ahead and bought an IP with a pool factoring in a number of considerations after discussing with PM:

A pool will make it more attractive for the SE QLD demographics as it’s relatively warm most of the year
Can charge an extra $10-15 per week rent to recoup back some of the cost
Tenant pays for the chlorine, as landlord we just need to fork out the pool service cost

All in all, it looks like we can pass over most of the cost by bumping up the rent.


So what did I learn out of this purchase?

There is a lot more hidden maintenance cost which eats into the yield

For starters, there are a number of other costs which I was not aware of including pool compliance certificate (~$200 for 2 years), chlorinator replacement (~$1000), and if the property goes vacant for a couple of weeks the pool will turn green (couple hundred dollar to clean up everytime there is a change of tenant)! Every little bits add up, so those came in as a nasty surprise to my initial cashflow estimate when the property was going to be positive or gearing neutral from day 1.


So for IP with a pool – always budget more maintenance cost each year, or just avoid buying IP with a pool completely. But if I was to do it again, I would never want to purchase an IP with pool. Less headache, less maintenance costs in general and more money into your own pocket.


Demographics play a big component for properties with pool

Looking back, I would also say the house with pool would play out differently it if was in say Karina, than in Slacks Creek today. A more affluent demographics in general will look after the property better and tenant moves less frequently. Over the last 2 years we’ve had 2 tenant so that’s on average one tenant move per year, with about 2-3 weeks vacancy in between. This means everytime they move out I need to do a clean and every little thing eventually adds up to the cost base.

But bottom line I would still avoid get an IP with a pool :)

HERO8KING

3. Third lesson - do your due diligence on the team members you trust and use

We all know to invest in property it’s a team work and not a solo show. So it’s important to choose the right team m embers around you while you’re on the property journey to ensure they help you towards moving to your goal.

The issue I had early days was that we would take other investors referral of team members without doing our due diligence. It builds on the high level of trust established between you and the investment team members you have around you. So logically you would take their referrals as granted as well.

But as some of you would know from my story earlier – we’ve experienced where a referred builder took the deposit for a piece of agreed renovation work and simply vanished. The deposit was not significant (only about $4K) but it did ruin my original plan where the property would have the work completed and ready for rent prior to X’mas.

I couldn’t find another builder to turnaround quickly, and I couldn’t secure a tenant being so close to X’mas period, so it ended up being a prolonged period of vacancy into the new year.

So what did I learn out of this experience?

Always validate the team member’s credentials. Look them up on authorities websites to see if they’re legit
Because of the high level trust my PM has built with me back then, I took her recommendation for granted without doing my own due diligence on the builder’s licenses. Apparently this builder has been a pro fraudster for a number of times now, and was able to get away with it every time. Check, check and triple check!
Check the referred person with other fellow investors

The referred person could have a commercial agreement with your PM, Accountant, Broker and so on so it’s best to validate from other investors who have worked with the person before. If you’re getting consistent positive feedback about the person’s work then it’ll minimize your risk of picking a dud team member.

I find Property Chat meetup really useful in this instance. Other investors are always open and willing to share who they use and what their experiences are like so if I was to do it again I would run past the Property Chat community first.

悉尼土地娘娘

不错啊，请继续

HERO8KING

4. Fourth lesson – On the ground visit is as important as ANY due diligence


I’m always a firm believer of the phrase “seeing is believing”. And for the area I invest in, I would go and visit the area myself to get an in-depth understanding of the suburb as well as what sort of people lives here. (OK I’ll also admit part of me also like to explore places I haven’t been before, so…)

Initially I would do all my due diligence online, but once I nail down the suburbs then I would actually set my foot on the suburb to work out what I can’t see behind a screen. As an example, when I was purchasing Woodridge I’ve gone into the Logan Central Plaza to check out the demographics. I took my laptop with me but I have to admit, as soon as I walk in my instinct tells me it’s quite a different demographic straight away and it just feels unsafe. So I walked out, put the laptop back in the trunk, made sure it was locked up properly and then walked back in the shopping centre. It was midday but even then my sixth sense tells me it was quite a different demographics that lives here!

I like to stick around the shopping centre and have lunch so I can watch various types of people living here – type of ethnic groups, age groups, is it dominated by young family, mature family or retirees? It’s interesting to watch and by the way they dress you can also tell easily whether they are blue/white collar. But I have to admit it was very uneasy at Logan Plaza, so I walked around about twice and then decided to head out.

But instead of trusting what I saw on the ground, I still went ahead with my Woodridge IP purchase and while the yield was great on paper, the reality is tenant instability and rental arrear have been bugging me all the along and eating into a good portion of the yield. If you were to ask me again, I will not make the same purchase in such a low socio-economic suburbs anymore. I would rather forego some of the good looking yield on paper and stepping up to a slightly better suburb to balance out yield and CG.

As another example, when I was purchasing my Murrumba Downs IP I went on the ground and checked out the Kallangur train station (which was completed but is not yet open at that time), and also noticed how much infrastructure and new houses are being built around Mango Hill. Same thing with North Lakes. These you won’t see unless you’re actually on the ground, so shows the importance - nothing beats on the ground checking things out!

HERO8KING

5. Fifth lesson – avoid buying in areas with plenty of land

As I love exploring new places after 2 Logan IPs apart from Moreton Bay I was also considering out towards the west, in particular Goodna (thanks to Seechange for the idea). So I went on the ground and check out Goodna plus the surrounding areas.

I loved Goodna’s direct distance to CBD, but half of the suburb is flood prone so I was really only targeting the small pocket between Smiths Road and Goodna cemetery where you can still pick up a house on 600SQM block around 200 to 250K and rent high 200s. So on paper it feels worthy enough for a trip. (This is back in 2016 by the way)

But when I actually walk around the neighborhood I get similar feelings to the lower socio-economic areas of Logan. There are rubbish dumped in front of houses, lawns/gardens not maintained, and people staring at me in a funny way. So as much as it looks decent on paper I felt like it might not be the type of area I want to invest in long term, after what I’ve been through after the Woodridge IP.

Driving around Goodna, Bellbird Park, Redbank, Riverview… what really alarmed me was the amount of available land out in the west. There are lots of house and land packages available for sale and no shortage of ads around which turns me off. It reminded me back in 2009, Dad and I made a trip to Ipswich because it was advertised as the “future Parramatta of Sydney”. And when we were on ground in 09 we drove a long way out to Ipswich and saw loads and loads of available land. We knew it’ll take a while to get there but almost 10 years in we’re still seeing the same thing - lots of available land around so despite the yield stacks up I wouldn’t want to invest my money here.

Don’t get me wrong, with the amount of money government is putting in to Ipswich it will eventually have its days under the sun. But from land availability perspective, I felt the supply still far outweighs the current demand as Ipswich takes it’s time to grow to Parramatta equivalent. How long would that take? No one knows.

What did I get out of this visit?

Avoid invest in areas that still have an abundance of land

Land value is what increases over time but there is no point buying land in middle of nowhere or where there is no demand but plenty of supply. This is why the land value is so different in the inner Brisbane ring in comparison with the outer Brisbane ring – a difference of demand and supply. Sydney is even a better example – limited in 3 direction with no further availability of land it can only extend out towards the west and that’s why land component in Sydney is just GOLD (literally!).

HERO8KING

6. Sixth lesson – investing in low socio-economic areas which almost guarantee some sort of tenant issues


When I was looking at Logan back in 2015 I was really attracted by the highsets and the concept of low purchase price and high rent. The original thinking behind this is that they will provide a more robust and sustainable portfolio to hold long term, in particular when interest rate start to climb back to its historical level.

The theory is sound and cashflow is great until you hit tenant issues. This is just part of the risk investing in lower socio-economic areas. Given our Logan properties are sitting at low socio-economic areas (Slacks Creek, Woodridge and Eagleby), the challenges to-date have been:

1. Difficult to secure decent tenants with a proper job/pay/employment. In particular Woodridge seems to attract tenants on Centrelink payments

2. Tenants seem to always struggle in making rental payments on time and falls into arrears from time to time

3. In QLD you need to go through a series of processes before you can evict the tenant - Notice to remedy breach, Notice to Leave, and then QCAT to evict the tenant. Plus if they do pay up some rent during the Notice to remedy breach period, then it all resets. So it was possible for the tenant to fall into arrears, pay up a bit, and then falls into arrears again just to “reset” the notices. And then it goes into a constant cashflow arrears battle


I’m sure there are great tenants in the lower socio-economic areas too however with my experience to-date it almost doesn’t seem to be worth all the headaches. To give you a real-life example, recently my Slacks Creek property has an additional “tenant” who wasn’t on the lease. The tenant on the lease was a legit full time employee at Harvey Norman but he decided to let his “mate” move in at some point without letting the PM know. And then the saga starts from there:

· Tenant on lease decided to move out but kept paying the rent

· “Mate” wasn’t interested in providing any information or sign the lease, so after going through the QLD eviction process which took over 2 months we finally to get him out (ouch my cashflow)

· During an open inspection PM spotted meth being left on table and suspect the “mate” has been doing drugs in the house. So after we evicted him, we’ve done a test throughout the house and two rooms (lounge and rumpus area downstairs) came back positive i.e. over the normal tolerance level

· So the house cannot be advertised as it’s contaminated. And it ended up being an ongoing saga between PM, insurer and lost assessor as we go through the painful process of reviewing contamination report, organizing for de-contamination process to take place, determine what is covered as part of the claim, how much is covered etc. On top they’ve discovered asbestos on the area they needed to decontaminate, just to show how “fun” it was lol…


This saga lasted over 6 months and is probably an extreme case of what could happen but I’m sharing it so people can understand the risk of investing in these areas with tenant causing issues. It was a very painful process as I’m not in QLD, have a full time job and kept getting very little update and when I do its second hand - each party constantly pushing responsibilities to others and there was a period of time where they couldn’t agree on the next steps so further drag the timeline out.

Thankfully the silver lining is the insurer finally agreed to reimburse all the rental loss throughout the whole period as the place is deemed uninhabitable and covered all for all expenses including de-contamination plus removal of asbestos. But I certainly hoped this would not happen to any other investors.

So what can we do to avoid making the same mistakes?

To invest in low socio-economic areas you need to have a gun PM who takes ownership

Engaging a gun PM is a must to minimize the risk of getting crappy tenants into your house. In this instance the tenant is legit but his mate who moved in by himself is not. The PM needs to be proactive and come in strong and take action to get rid off the mate asap who doesn’t want to sign the lease. These are early indicators but because they were still paying rent so I let it slip – so it was partly my mistake as well, but the PM also wasn’t taking much ownership in advising next steps.

Always make sure your PM is on top of who is living in your IP and take action as soon as unwanted guest starts to linger around. And again good PM selection is just paramount - check with fellow investors for their recommendations!

Having insurance is a must, and the cheapest insurer may not always be the best

I consider myself very lucky in this scenario. Just imagine if I didn’t have insurance in place – then I would probably be forking out close to $35 to $40K myself in getting rid of the contamination plus the rental loss across this period. In comparison the yearly insurance premium is nothing. So I’m grateful I’ve always had insurance across all my properties for this kind of rainy days.

Also I know some investors would just pick the cheapest insurer with the idea to minimize cost. What I find is cheapest isn’t usually the best as they have a lot of fine prints. Drug contamination case has been a rare instance even for my insurer too so they weren’t too sure initially if it was covered but we’ve got all the historical records and evidence so after reviewing them they have accepted as a legitimate claim.

I could easily imagine some other insurer may not be as generous/fair as this, as I have heard some insurer could even take up 6 months for a small amount of rental reimbursement. In my scenario I have requested an interim rental reimbursement around March (and got paid out within 2 weeks) and a final pay out just couple of weeks ago as case is finalized, at last. So having an insurer that actually reimburse on time does help.

P.S. total payout from insurer was about $35K across two transfers.

HERO8KING

7. Seventh lesson – Focus on choosing IPs with value add potentials

When I started looking at investing in QLD I have been focusing on selecting IPs that have good value-add potentials. Truth to be told, I didn’t have this mindset when I was buying back in Sydney. So what leads to this realization?

To start off, when looking around Logan in 2015 I learnt about the concept of “Highset” – where I can buy such asset and potentially utilize downstairs to maximize my rental return up to a gross yield of 7%+. I thought to myself, if I was able to get these type of properties then it’ll be easy to hold and could even help replacing my income!

So that’s where the concept started and investors targeting Highsets in SE QLD has been a popular value-add strategy to the point where you can even see ads now saying “this is a Highset with lots of room improvement/blank canvas downstairs!”.

So after acquiring two highsets in Logan that’s where I sat down and ask myself what would the savvy investors be targeting to buy? And that’s when I started to develop my own list of potential value add checklist as part of my DD, which consists of:
1. Good Yield – Gross yield of 6.5% or more
2. Excellent Location – close to good school/public transport/major shopping centre hug/major upcoming infrastructure such as new hospitals or university
3. Contains scope for value add – such as cosmetic renovation, granny flat potential, build out downstairs for highsets
4. Contains future development/subdivision potential – allows the block to be developed or subdivided at a later stage

What I would do as a deal comes up I would assess it first against these 4 criteria and for me to consider the next level of DD it must meet at least 2 criteria out of the 4. But in general the more the better…if you can find something that ticks all 4 then it’s a cracking deal!

So for the Logan IPs at Slacks Creek and Woodridge, they both tick 1 and 3 – good yield and contains scope for value add. Murrumba Downs ticks point 2 (new train station & uni) and 3 (potential GF at the back), and Eagleby ticks point 1 and point 4 (corner block over 750SQM is sub-dividable).

Not to mention the latest IP in Newcomb – this is a classic example of simple value add of adding an extra bedroom by a wall and then catching the upswing Geelong property wave. I was lucky to make easy 100K equity in the last 12 months.

So what’s the lesson learnt out of this?

· Always select an IP based on having an X factor

Having something unique about the property will allow an investor to manufacture equity when the property market goes flat into a prolonged period. Keeping in mind property market doesn’t always just trend up, it can go down as well (like what’s happening now in Sydney/Melbourne) and most of the time sideways. So in that sense you can add value when you’re ready, independent of the market condition, and manufacture equity to continue leaping forward towards your financial goal.

HERO8KING

8. Eighth Lesson - How to select a Property Manager

When it comes to investing property interstate, most people are concerned about not able to “pop by” the property when issues arise. For this or whatever other reasons, what I tend to find is the new investors will always find an excuse to rationalize why they shouldn’t invest interstate and decided to purchase in the local neighbourhood instead because they are more familiar with the area.

But the reality is, unless you are managing the IP yourself without a PM you really don’t need the IP to be close by. Well, if you do manage yourself, then yes you may want to be close to the IP so that you can respond to tenant requests in a timely fashion as required. But I believe most investors would not be doing this themselves (if you do then it’s a complete separate story). Instead majority would be willing to engage a PM to manage the property to save them from the tenant headaches.

Once an investor understands this, then the challenge comes down to finding the right PM who can be your eyes and ears on the ground (both interstate or local).

So how would you identify a good, or “gun” PM? There are a number of ways but usually word of mouth from fellow investors is the better approach I’ve found so far. If an investor is recommending PM’s service then he/she would be doing something right, and therefore are comfortable referring such PM’s service to others.

The referral is really just the first step. As a next step I personally would get in touch with the PM, preferably organize a face to face meeting where possible to get to know them personally and establish rapport. If the PM is interstate, organize a day to fly there and invite them out for a coffee – you’ll be surprised how much information they will be willing to share with you.

Get to know them well personally is important simply because PM is one of the most crucial team members in your Property Investing journey. As I have written previously in my personal blog (The importance of having a trusted team around you – Part 2), you need to be able to trust the PM to run and manage your property on a day-to-day basis. And to do that you will need to gain an understand of their personality, integrity, communication style and how they manage your (and tenant’s) expectations. No better way to do this than meeting them and understand them at a personal level!

On top of getting to know them personally, I would also run through a couple of questions to get an understand how they will look after your property. Here are some of the questions that I use during my coffee with them (nowhere near comprehensive, but I hope it gives everyone some guide):

1. How many properties does your PM manage on average?
The preferred guideline here is about 100 properties per PM (max!). If it’s over 100 the load on a PM is starting to get too much on hand so may not be able to be as attentive as they would like to.

2. Do you have experience in assessing repairs or renovations that a property might require?
The intention of this question is to understand whether the PM has any basic handyman skills or they just collect rents. A PM with basic handyman experience can help spot potential issues which investors are not trained to be aware of, and provide proactive advice on what should be done to mitigate any further risk/issues. Some PMs can also give some idea on a ballpark figure for repairs depending on their experience.

3. What separates your services from those of other property managers in the area?
This is a lead up question for them to show you where their real value-add is. Each PM agency will have a different expertise and you want to know whether this is in-line with what you are seeking. Most have the local area knowledge but they may also have other differentiator which they can demonstrate.

4. Do you have a Service Level Agreement in place if a mistake is made by your team members?
We are all humans so inevitably people do make mistakes, in particular in the rental statement area. There’s nothing wrong with making mistakes, however the important aspect here is to understand how the PM will address your issue/concerns and in what kind of time frame. You would not want a small mistake dragging out for 6 months not fixed!

5. How do you screen and process potential tenants?
This is a bread and butter PM question in understanding their tenant selection process. As a PM agency, what do they focus on during this process and is that aligned to what you are expecting as an investor? This question give them an opportunity to demonstrate whether they truly understand a local social demographics of the area and what checks are in place to filter out the crappy tenants.

6. How do you ensure repair requests and maintenance needs are dealt with promptly?
This is to uncover whether the PM agency have a backbone system in place to deal with various maintenance requests or whether it’s a purely manual process. A good, established PM agency would have a software/online system in place to be able to manage each requests effectively and to be able to show the history/lifecycle of such maintenance request. If it needs to be manually tracked then guaranteed there will be prone to human errors.

7. What experience do you have with the specific area in terms of rental appraisal and possible increases?
This is to understand whether the PM actually has expertise knowledge of the specified area. Do they know what are the “good” and “bad” streets, and which area have better tenants? What are the elements which affects the rent and possible increases?

8. Would you be managing my property, or would there be another PM who does this?
Most of the time PM agency owners (who you meet) will not be the one getting their hands dirty and managing your property on a day-to-day basis. It is therefore paramount for any investor to confirm this, as you do not want a trainee PM to be looking after your property and causing you frustrations!

It would also be wise to verify the PM’s history/experience/credentials, as you want to ensure your property is in safe and comfortable hands. Overall, that’s the number 1 reason why we are using PM services, right?