Getting started: Phoebe and Carl part 1
Phoebe and Carl have a bit of savings behind them and want to jump onto the property ladder as soon as possible. The only problem is, they’re not entirely sure where to start and they’re acutely aware of the many areas in which they could go wrong.
They know their first purchase will be an important one, so they are trying to rein in their excitement and make sensible and sustainable decisions. “We’re just trying to figure out where to start,” says Phoebe.
“We’re looking at which areas to buy into before we go and invest our money. Obviously we’re quite young and we don’t have a lot of money to play with, so we want to use it wisely.”
She says the ‘ultimate aim’ of their property investment ventures is to buy homes, renovate to add value and eventually sell for a sizeable profit.
This may be a pipe dream for some novice investors, but Phoebe and Carl’s aspirations are all the more achievable because Carl is a builder with his own business.
Indeed, despite their lack of investment expertise, the young couple does have experience at improving properties.
The two youngsters still live with their parents, but Carl built Phoebe her own room as an extension of her parents’ main residence.
The room, which is above the carport, is also equipped with a deck and is surrounded by trees.
“It’s spacious and absolutely gorgeous,” says Phoebe. “It’s above the car port, which means we’ve utilised the property to the best of our ability because it’s not a huge block of land.”
Financial fears
Carl and Phoebe say their biggest fears about investing in property are losing money and not having enough knowledge to make profitable decisions.
Duncan Yelds from Profit Through Property says this lack of knowledge is common among investors – and not just young first-timers – and the biggest mistake investors make is “not getting an education”.
“It doesn’t matter whether it’s first-time investors or an experienced investor – often the thing every investor lacks is a financial education and really understanding how money works in making property work for you,” he says.
“Once clients understand the banking processes in Australia and how to then recycle equity using the property, they become very powerful because they actually do understand what they’re doing with their money every time they invest in a deal.
“So financial literacy and financial education is far more important than even buying a piece of property.”
This financial literacy, Mr Yelds says, enables investors to then remove emotion from the process and purchase properties that are appropriate to their portfolio.
“This is what it comes down to – the numbers and the financial literacy,” he says. He recommends Phoebe and Carl ask themselves “What is it you want this property to achieve?”
He says a ‘love’ of property is not enough, and young couples like Phoebe and Carl need to look at their desired outcomes and what they need the properties to do within their portfolio.
Simon Pressley, a buyer’s advocate for Propertyology, says young property investors often jump straight to the property selection process before fully understanding their finances and the processes involved in success.
“The selection process we might go through to buy the family home is a different process to the one we undertake to buy an investment property,” he says. “We’re not buying to satisfy personal needs; it’s to satisfy a financial need. It’s to make money.
“So selecting a property because it looks nice or because we feel we know the area is a common mistake that amateur investors make. They say, ‘Oh we know the area’ – which basically means they know where a park is or where the shopping centre is. It’s not really knowing the area at all.”
Mr Pressley suggests young investors who struggle with the idea of investing outside the area where they grew up should look at the transaction through the lens of share investing.
“They need to understand that as property investors, Australia is their investment playing field – not just that five-kilometre radius from where they currently live,” he says. “That’s often the undoing of investors.
“It’s like a share investor saying ‘Look, I work for Qantas, so I can only buy shares in Qantas or Virgin’. Only investing where you live is really limiting yourself and ultimately costs you profits.”
Mr Pressley says further costly mistakes can be avoided with thorough ¬planning.
“It’s important that you play with the end in mind,” he says. “So what does the end look like in your mind? How much money do you need to make and over what sort of period of time? What’s your appetite for risk and what can go wrong?
“Then you need to strip it back to what you can invest in now. What is¬ the best name to buy things in? What is¬ a suitable risk management strategy? ¬What’s the best debt structure? What’s the best use of your current available capital and cash flow?
“All this will lead to certain price points to buy into or avoid. It’s like building a house: if you don’t lay the foundations right, it doesn’t matter how pretty the furniture is, the house is going to crumble over a period of time.”
Getting the right advice
Phoebe and Carl were inspired to begin investing in property by a friend, Mitchell Burge.
Mitchell first invested in his early 20s and now, at the age of 30, has built an impressive portfolio. Mitchell’s end goal is to retire at 50 with an income of $300,000 per year generated by real estate. Even though the size of Mitchell’s debt may intimidate some people, he says it’s all about understanding the numbers and knowing how to use the debt.
“Money makes money,” he says. “Once you’ve started, it’s easy. It’s just that the figures scare the hell out of most people.”
Mitchell says people who believe property investment is out of their reach because of their income or historical inability to save are mistaken.
“Everyone gets opportunities,” he says. “You just need to be in a position to grab them.”
Phoebe says Mitchell’s successes have inspired her and Carl to get started as soon as possible.
“For me, Mitch is such an inspiration,” says Phoebe. “He did it quite quickly because he focused on cheaper properties, and we’d like to do the same. We would like to build an extensive portfolio as quickly as possible without making any irreversible mistakes.
“We want to do it in a way that won’t send us broke. So as many properties as we can get our hands on – just as long as we don’t tie ourselves up in knots.
“Because we’re such novices we don’t know what we’re doing.”
Propertyology’s Mr Pressley says while it’s important to observe and learn from other successful investors, first-timers should be careful who and where they get advice from.
“Where people have been influenced and how much they listen to unqualified but well-meaning advice can make a big difference in an investor’s success prospects,” he says. “This influence and misinformation often starts well before young investors even put their toe in the water with their ¬first investment property. Over their time in educational institutions, the workforce and social situations, property and views about property are discussed.
“The material they read over that time and the information they’ve heard from their family and friends helps them form opinions. When it comes to property investment, 99.9 per cent of what people take as gospel is complete and utter rubbish – but you don’t know what you don’t know.”
Obviously we’re quite young and we don’t have a lot of money to play with, so we want to use it wisely
Mr Pressley says investors like Phoebe and Carl should recognise that investing in property is a specialist ¬field and everyone around them will have an opinion, some words of wisdom or an anecdote to help them along – but it may not be the best thing for them to follow through and take the advice.
“They should definitely engage professionals,” he says. “There aren’t many Australians who actually understand that property investment is a profession. There are people with tertiary qualifications who work with property investors as their core business.”
Mr Pressley says spending money up front on qualified property advice can ultimately help young investors reap more rewards in the future.
Phoebe and Carl concede they have a lot to learn, but they are excited to get the process started.
The next thing they need to do is sit down and formulate concrete goals and establish how much capital they’re going to part with.
“We’re not trying to make massive dollars,” says Carl. “I mean if it happens, it happens – but we just want to live comfortably.”
“I think the goal is to live as comfortably as we possibly can,” says Phoebe. “We don’t want to be Kerry Packer or anything – we just want to be able to go on an overseas trip without restructuring our whole lives. We just want enough money to raise a family together and live in a lovely home.”
Read more:
Locked and loaded: Phoebe and Carl part 2
Setting your sights: Phoebe and Carl part 3