Getting ahead: property investing for your retirement

“It might sound strange, but I’d wake up in the morning and go into a panic, thinking I’ve got to do something about my retirement because I don’t think my super is going to be enough,” she recalls.

That anxiety is now a thing of the past. The 35 year-old now has close to $1 million worth of real estate under her belt and a rental income of more than $45,000 per year to boot.

Ms Leung even had her foot on the property ladder at the same time as she was feeling apprehensive about her future, having already purchased her first home.

After a couple of years’ working in London, she had managed to save enough within just 12 months for a deposit on that property.

“When I got back from London, I moved back into my parents’ place,” she says, “but I wanted to have my own place. I didn’t go out and spend too much on stuff I didn’t really need, I focused on buying a place for myself.”

Ms Leung’s first home was a two bedroom unit in Narwee in Sydney’s west, for which she paid $205,000 in 2007.

The unit, one of 12 in a 1970s-era complex, wasn’t anything fancy but it suited her needs.

“I actually wanted something new or renovated but I had an average income,” she says, “so unless I wanted to go right out to the west, which I didn’t, I couldn’t really afford something renovated.”

Instead, she renovated the unit herself, employing tradespeople to install a new kitchen, new flooring and air conditioning.

The renovation cost around $13,000 but just one year later the property was revalued at $240,000 – $35,000 more than what she paid for it.

The search for financial security

Having claimed the titles of homeowner and successful renovator still didn’t leave Ms Leung feeling financially secure.

“It was around then, about a year after I purchased my first property, that I started thinking about being able to live comfortably in retirement.”

The simple path to financial freedom for Ms Leung would lie in property.

“I didn’t look at shares, or anything else, because I knew from what I had read that property is one of the most secure types of investments you can do long term,” she says.

She began to immerse herself in real estate, reading property magazines and researching as much as she could.

Although Ms Leung was earning an “average” income, she had still managed to save just under $40,000 and now wanted to build a property portfolio, but wasn’t sure how to do it.

“I knew I had the funds to buy at least one investment property but was hoping for more without having to wait 10 years to build up my savings for a second one,” she says.

“I decided to do some research on how I could purchase more than one property in a short period of time – in other words, in five years.”

One day, an advertisement for buyer’s agent Property Secrets caught her eye and she called to set up a consultation. It would be with this buyer’s agent that Ms Leung would make her first two investment property purchases, as well as develop an investment strategy that would enable her to fast-track her portfolio.

The strategy

With her buyer’s agent, Ms Leung decided to focus on buying properties in the most affordable segments of the Sydney market and then to renovate them to add value and increase the rental returns immediately.

“My properties are in western Sydney, which is expected to boom over the years, and it is an area where I can afford to purchase, given my salary.

“The renovation part is important as it increases the value of the property so that you can approach the bank to release the equity straight after the renovation,” she says.

“This enables you to use those funds for further investment as well as allowing you to rent the property at a higher rate,” says Ms Leung.

But while Ms Leung had renovated previously, it had not been with the eye of an investor. Fortunately, the renovation of her own home had been successful, providing her with a good equity base from which to build her portfolio.

Her first investment purchase was in October 2008, a three bedroom house in Tregear in Sydney’s west that cost her $200,000. She bought the house using some of the equity she had built up in her principal place of residence as well as using some of her savings.

Renovations totalling $13,581 saw the Tregear property revalued at $240,000 in November 2008 ($40,000 more than the purchase price) and secured Ms Leung a rental income of $310 per week, or $16,120 a year.

In January 2010, Ms Leung was ready for investment property number two so she purchased a $264,115 three bedroom house in the western Sydney suburb of Colyton. Following a $22,000 renovation, six months later this property was revalued at $305,000, securing her a rental income of $335 per week, or $17,420 per annum.

Adding the granny flat

In addition to gaining equity through renovation, Ms Leung has also used a granny flat strategy to improve her cash flow and ultimately to help her build her portfolio more quickly.

It was a strategy she decided on after discussing her next move with her buyer’s agent.

“I wanted to purchase a third investment property but he told me, ‘You can’t service one, Aliyah – you haven’t got enough income’.

“What he suggested I do was get a granny flat, which would give me more income and allow me to service the loan when I do go to the bank for a third investment property.”

Her first granny flat has been a resounding success: for an outlay of $60,000, Ms Leung has increased her annual rental income from the one property by nearly $12,000.

“It makes me positively geared, basically,” she explains. “Also, if interest rates go up I probably won’t have to worry for some time because I’ve got that second rental income to help me with the mortgage.”

The first investment property in Tregear is currently cash flow positive by just over $400 per month due to the extra rental income generated by the granny flat.

“I am cash flow positive even taking into account the two loan increases applied for, which now stand at $255,000,” she says.

“For Colyton, I am cash flow negative by about $600 per month. This is also taking into account one loan increase application, which has brought my loan to $289,700.  Once the Colyton granny flat is leased out I’m sure I will be either cash flow positive or close to it.”

The end goal

The main aim of Ms Leung’s investment strategy is to position herself well financially – and not to have to worry about panic attacks ever again.

When it comes to financing her properties, she has generally employed a high loan-to-valuation (LVR) strategy, with minimal deposits.

“My goal is to have at least five to 10 properties in my portfolio within the space of five years,” she says. “It’s really just to ensure I’ve got a comfortable retirement.

“I might be able to retire early if I have a large enough portfolio, or only have to work part time – or not at all. I’ll have choices. Freedom and choice, that’s what I’m hoping for.”