A case study: patience and planning

Back in 2011 I met a young prospective investor at a first home buyer event I participated in alongside a lovely industry buddy. Steve Cruz and I teamed up and ran a series of small seminars over a few weeknights for buyers who were keen to explore the idea of property investing or home-buying. The nights weren’t always well-attended but we did enjoy the questions and the interactions with our participants. For many, it was early days on their journey and the evenings focussed on the initial planning phase; usually addressing minimum deposit savings and all of the fiscal elements a young buyer would need to consider in order to be purchase-ready. Steve chatted about the finance, and I addressed the property side of the equation.

Some months later, Anna* contacted us. Anna was in her twenties and she’d been to one of our sessions and was serious about buying a property. She was well aware of her budget and borrowing capacity constraints and had decided that she’d be prepared to rent-vest initially, making cashflow sacrifices in order to get started on the the property ladder. Her ultimate goal was to build up to buying her own home one day; preferably on the beach.

A big goal? For sure, but a very realistic one if she could stick to the plan.

Anna had been saving aggressively and her funds on hand were limited, but we discussed the benefits of lender’s mortgage insurance versus continued time spent saving to achieve a 20% deposit. Steve arranged the pre-approval, and we started working together to find Anna a great capital growth performer that could generate her enough equity to springboard into another investment property.

Anna’s first purchase was in Deer Park, and it’s fair to say that back in June 2012, Deer Park was not yet a gentrified suburb. In fact, houses in Deer Park were affordable by Melbourne measures. Situated near a train station and just 17km west, my analysis had lead me to a handful of established areas, serviced by rail that had a promising capital growth potential based on the expansion of the urban growth boundary and the proliferation of a lot of land releases considerably further out than these older, established neighbourhoods.

Anna bought this house for $276,400 and rented it back to the owners at a 5% gross rental return for a while until they ultimately moved on to buy a home of their own. Anna’s rent peaked at $340pw.

We targeted a full sized block of land with development potential. Not that Anna had development plans, but she did plan to sell and crystallise a gain when it was her time to buy her own home, so we wanted to capture some developer appeal to bolster Anna’s chances of a tidy profit.

The property did perform for Anna as planned, and in late 2017, Anna and I targeted Ballarat for her investment property number two. We selected Ballarat because Anna was targeting a neutral cashflow scenario, (much like that of Deer Park). She wanted to be able to comfortably balance her own living expenses, rental, maintenance on her properties and in particular, she wanted to be able to continue saving too.

We planned our voyage to this exciting regional city and shortlisted over ten suitable contenders to inspect. This neatly renovated cottage in Ballarat East scored highly, and within 48 hours Anna had an executed contract of sale for $330,000.

The property leased immediately for $330pw, delivering a neat 5.2% gross rental return almost seamlessly. Combined with the depreciation benefits, Anna found herself in positive cashflow territory very quickly and recognised that unlike Deer Park, this property was a long-term keeper.

Her next property, she reminded me, would be her home.

Anna got in touch again recently, and after a rewarding bank valuation on her Ballarat property, we jumped into gear with her owner-occupier property strategy. Over less than a four year period, Anna’s cottage had delivered a whopping 11% pa capital growth return.

Anna sold Deer Park for $540,000 and had a nest egg, access to equity and a spring in her step.

Anna’s wishlist was realistic and exciting. She wanted to live by the beach, have rail and local shopping amenity, and in particular, really wanted a yard for her dog, (on order for a March arrival, which did make me smile. No pressure, of course!)

We worked on a search band from Elwood to the Mordialloc Creek, shortlisting every available dwelling within her budget that offered a yard. Anna inspected diligently with her Saturday itineraries and when I received an excited “Green light! Green light!” email, I had a good feeling about this villa.

The inspection didn’t disappoint. Offering security gate access, a generous yard and decked area for the front unit, only five in the block, solar panels, recent roof works completed, and a superbly renovated interior, and situated a very short walk from beach, shops and station, I knew this one was worth pursuing.

Others felt that way too and the agents fielded offers from four competing buyers for this gorgeous villa.

Happily for Anna she can now take stock of her new home and look forward to the arrival of her dog in the new year. We’re so thrilled for her, and in awe of a well-crafted, well-executed plan that spanned ten years exactly, from concept to execution.

We wish Anna years of happiness in her beachside abode, and decades of capital growth and financial success.

It’s been one of our favourite assignments of 2021.