Geared for success: Q&A with Philippe Brach
Q. What motivated you to begin investing in property?
I arrived in Australia from France in 1997 and was employed in the corporate world in Sydney. At that time, I was wondering what I could do with my money and I discovered this thing called "negative gearing", which almost only exists in Australia.
When I worked out the numbers, I just had a light bulb moment and thought "this really is money for jam". I didn't understand why everyone in Australia didn't own an investment property because it's just a no-brainer in terms of wealth creation.
Everyone talks about property but not everyone does much about it. Then I realised the reason a lot of Australians fail to invest in property is not because they can't, but because they don't understand how it works.
When I had my midlife crisis and decided to leave the corporate world, it was natural for me to go into the field because by that time I had already amassed a large portfolio. I decided to create a business to help people understand how investment works and help them create wealth.
My portfolio is now 13 properties, valued at $6.8 million.
Q. What was your first investment purchase?
It was a villa in Calamvale, which is 14 kilometres south of Brisbane. I bought it for $190,000 in December 2003 so I have now had it for 11 years. Today, it is worth about $385,000, so it pretty much doubled in value.
The property was not new but it was close to new – only one year old. Because it was my first purchase, I did not feel confident enough to go for an off-the-plan unit or a house and land package, which are a little more complicated.
It was a nice introduction and it worked pretty well. That gave me the confidence to go do something else.
Q. How has your strategy evolved over time?
Right from the start, there was science to my madness. I looked at the numbers to make sure the purchase worked financially.
I knew in my strategy I wanted capital growth and 14 kilometres from Brisbane seemed to be a pretty good prospect. The cash flow was good and therefore I knew the costs were not going to stop me buying any other properties going forward.
The strategy has not really evolved much, because it works. Investing in property should be like investing in anything else. It should be as scientific as possible.
My plan is to keep the properties for the long term. I'm looking at keeping them until I retire. Then, I might choose to sell the portfolio, pay capital gains tax and just enjoy the cash. Or maybe I'll sell some to pay down the others so I'm still exposed to capital growth. Or, if I've paid off enough of the loans, I might live off the rent without selling.
I don't know which strategy I'm going to use because I'm a long way from retiring.
Q. How do you decide which property type suits different people’s circumstances?
It depends on someone’s situation. For example, take the situation where someone only has $50,000 as a deposit. I don't want to push people over 90 per cent LVR so that means I have to find a cheaper property.
The best choice might be a house and land package because you only pay stamp duty on the land, not the whole purchase. Buying a house and land package could save $10,000 or $12,000 in stamp duty alone.
Conversely, you could be in the position where somebody has the deposit but may not be quite ready to buy. For example, maybe they have only been in their job for a month. In that case, an off-the-plan purchase might be a better option.
I didn't understand why everyone in Australia didn't own an investment property because it's just a no-brainer in terms of wealth creation
Q. What has been your biggest investment mistake?
When I started buying properties, I wanted to try various types. One of the purchases I made was a retirement unit for the over-55s.
The cash flow was extremely good. However, because pensions were increasing by two per cent above CPI, I assumed capital growth in the unit would follow the same pattern. But it didn't. It has a great cash flow but basically no capital growth at all.
Because of my position today, it does not really worry me. It's cash flow positive, so it does not cost me anything, it just doesn't help me grow my wealth.
Q. What are some common misconceptions Australians have about property?
They think it is difficult and full of traps. They think danger is around every corner and they are going to be fleeced by some unscrupulous spruiker.
In the past, you had more unethical people in the industry but they have been pretty much cleaned out. I think it's unwarranted that people are still wary of talking to agents and professionals about getting help in investing in property.
People often call me and say, "We have a few properties but they haven't really worked for us; we got ripped off”. But most of these people have never talked to good professionals. They have tried to do it on their own or listened to their friends. They end up paying the price in the end.