How can you enjoy new capital growth when the market is stagnant or moving backwards?
And how can you attract better quality tenants and increase your rents?
Part one of our series revealed how TV’s Chris Gray made virtually double his annual income with his first property.
Part two of our series revealed an awesome lesson Chris learned on how to find great property opportunities before anyone else and invest in property
without a deposit.
Part three will reveal some powerful lessons that Chris learnt about increasing equity, attracting better tenants and optimizing your investment strategy.
Chris’s Third Property – What He Learned
By the time Chris turned 27 he had two investment properties under his belt in the UK and had his dream car, a beautiful bright red Porsche, sitting in his garage.
But he felt it was time for a change.
So he sold his Porsche, took a gap year off from work, travelled around Africa and Asia for 8 months and eventually made his way to Sydney to start a new life.
Chris found another job as an accountant and eventually used the equity in his two UK properties to buy a unit in the Sydney suburb of Coogee.
The property had everything Chris was looking for to live in. It was near the ocean, was in a small block of nine and was perfectly positioned to take advantage of natural sunlight.
Chris bought that property for $360,000 just a few months before the Olympics.
All of his new Australian friends told him he was mad to buy because property prices would probably crash once the Olympics had finished.
Chris bought it anyway with a plan to hold the property long-term so that even if prices did crash, his property would eventually rebound again and appreciate over time.
Chris also repeated the same cash flow strategy he used with his first property and rented out spare bedrooms to flat-mates with the rent covering a large part of his mortgage repayments.
Chris was once again living in a desirable property of his choice and in an enviable position of having other people helping him to pay it off.
He also decided to attempt something he had never done before – renovations.
How Chris ‘Manufactured’ Extra Equity, Boosted Property Values
and Increased Potential Rental Returns
After moving into his new Coogee property, Chris decided it needed a makeover.
So he began renovating the property from top to bottom. It took a lot of hard work and patience but when it was finished, his property looked amazing.
People’s jaws dropped as soon as they walked in.
It wasn’t his intention at the time, but the renovation also proved to be an investor masterstroke.
Chris suddenly realized his property would now be in very high demand if he decided to one day put it up for rent.
It also meant he could probably rent it out for a much higher fee and wouldn’t have to worry about maintenance issues for at least 15-20 years.
When the banks came around to value his property, they also valued it much higher than Chris expected. When Chris did the sums he realized the renovation added more equity to his property than it cost.
Chris knew he was on to something. It was like an investor ‘epiphany’.
Rather than potentially waiting years for the market to move, Chris discovered he had the power to ‘manufacture’ extra equity in a property with the right renovations. This strategy also meant he could attract better quality tenants to a property and trigger greater demand for it in the rental market – it was win/win.
As you can imagine, renovation quickly became part of Chris’s property strategy and he bought, renovated and rented more property over the coming years.
This of course led Chris to a new problem – and another turning point.
Chris’s Greatest Investment Lesson
When Chris had five or so properties in his portfolio the banks decided he had reached his limit and refused to lend him anymore money.
Chris had reached a pivotal point with his investing.
Without additional bank finance available or any potential joint venture partners on the horizon, Chris was at a loss as to how he was going to move forward and grow his property portfolio further.
So when Chris saw a $15,000 a head training event on property investing, he decided to attend.
His friends told him he was crazy at the time for forking out that much money, but Chris attended anyway. He had the last laugh because within 12 or so months of attending that event, he was able to buy his new dream car, a Ferrari, and quit his job to become a professional investor.
Chris had perhaps learnt his most valuable lesson, namely that the best investors almost always have a ‘knowledge mindset’. They continually search for more information on how they can invest better and never stop learning.
Even today as a high net worth investor and professional buyer’s agent with several hundred property purchases under his belt, Chris still attends property and wealth creation seminars whenever he can to continue his learning.
Another Key Turning Point – Chris’s First Queensland Property
Another turning point came when the friend of a former flat mate contacted Chris for help.
This would be investor was in the United Kingdom and had roughly $300,000 cash to invest.
He had heard Australian property was doing well and wanted Chris’s advice on how to invest it in Australia.
This investor originally planned to put all of his money into a single property and wait for it to grow.
Chris immediately advised him against it and pulled out the calculator to show him why.
Chris explained that this investor would probably get around a 4-5% rental return on his investment. After expenses it would probably be closer to 3-4%.
But it didn’t make sense to invest in a property without leverage as he could buy the same property and only put $75,000 down.
Remembering his experience in partnering with his father to buy a property Chris suggested a deal instead.
If the investor was willing to put up just $75,000, Chris would pay him whatever the bank interest was at the time i.e. 7%.
Chris would then find a great property, invest his money into the property and finance the rest with a bank loan.
They would then go 50/50 in whatever capital growth came their way.
This meant Chris’ investor friend would get twice the rent return and twice the growth without doing any of the work (7% interest rather than 3-4% rent and growth on half a $300k property ($150k) for only $75k investment)
This would give the investor much better leverage in a property and allow him to invest passively.
The investor agreed to Chris' proposal.
At around the same time Chris heard a suggestion at a seminar that you should spend 10% of your money trying different things to see if you can find a better strategy or opportunity to invest in.
So Chris decided to follow this advice and bought a house and land package worth around $300,000 in Algester, roughly 18kms south west of Brisbane’s central business district.
Chris didn’t know much about Queensland property but had heard it was on the verge of a major boom.
A boom did indeed follow and a few years later that property had grown by around 50%.
It was a great result except for one thing – Chris' Sydney’s properties approximately doubled in value over the same time.
This experience taught Chris another valuable lesson as an investor and that is you can often do much better when you specialize in a niche area.
When Chris sat down to review his successes, he realized he almost always got the best results in areas he already knew well.
In the United Kingdom it was in St Albans. In Australia it was in Sydney, and in particularly Sydney's inner city area.
Today Chris specializes in Sydney’s inner city area roughly 5 to 15kms from the central business district and knows this market like few others do.
He knows what properties are worth, the best types of properties to invest in, what renters are looking for, and which renovations are best suited to the area etc.
Chris still experiments from time to time in other areas and with different strategies, but specializing means he is one of the best in his niche area of investing.
What Chris Learned
If Chris were to sit down and look at his sums today, he would see that his property portfolio is worth $10 million plus.
But the size of his portfolio is irrelevant.
What’s more important is the lifestyle his portfolio has been able to generate for him.
Chris now drives a Lamborghini, lives in the property of his dreams, regularly travels overseas with his wife and kids and has achieved total financial freedom through property.
Chris works as a buyer’s agent for investors specializing in Sydney’s inner city because he loves his job. The truth is he could retire comfortably whenever he wants.
Chris learned a long time ago that he would never achieve financial freedom from working in a job.
Building assets was the best way to get ahead. It was just a matter of finding out the best ways to do it and property was his answer.
As a wise man once said, someone is sitting in the shade today because they planted a tree a long time ago.
And that's why Chris chose property!