So what’s stopping you from diving into the property investment market? Too young? Not enough money? Afraid of failure? As a property investor and part-time IT developer, Storm Anderson demonstrates that there’s no need to let anything stop you from roaring off on the road to financial independence!
“I knew I was doing well out of property investing when I went to the bank to get a loan. They evaluated just two of my properties and they turned around and asked me, ‘So how much do you want to borrow? $500,000? $600,000?’ I was only looking for $140,000. I found out later that all my properties had doubled in value.”
Storm Anderson began his property portfolio five years ago, when he was 25 years of age. Now he owns several properties across Australia and lives in Las Vegas in the US.
Anderson says his motivation for getting into property investing was simple – he was broke and wanted to make some money. Even though early 2003 marked the end of a prosperous property boom in Australia, Anderson felt there was still money to be made.
Starting out: heaps of cash… who needs it!
“I started out with a little under $10,000 in cash and no other collateral, and over the last five years of investing I haven’t spent a cent of my own money,” explains Anderson. The first property he purchased in 2002 was “a great two-bedroom townhouse” on the Gold Coast that cost only $115,000. “Basically every dollar of my $10,000 investment went on securing that property,”
The property was positively geared – the rental income he was receiving exceeded the mortgage payments he was making – and capital growth was rapid. After six months, he was in a position to buy his second property using the equity that had already accumulated on the first. This time it was a three-bedroom high-set home in Redcliffe, a small town just north of Brisbane, and the buying price was $140,000. The low cost again allowed for a positive cash flow on the property.
Because Anderson had committed to two properties at this early stage, he and his wife did have to make certain sacrifices in terms of day-to-day living expenses in order to keep making the payment and meet the other expenses generated by the two properties. “We had to live in tiny one-bedroom apartments which were usually pretty run down, and we wouldn’t buy new clothes or go out to dinner all that often,” he says. “We lived a pretty basic lifestyle for a while.”
Your portfolio: the third property and beyond
With rents covering his mortgage repayments and capital values on the rise, Anderson was soon able to purchase three more homes within six months – another high-set home in the Redcliffe area of Brisbane, a 100-year-old home in Bathurst NSW and a three-bedroom home in Burnie, Tasmania with 140-degree ocean views for only $65,000. In financing the properties, Anderson used the capital already built up in his portfolio.
“I never refinanced any loans until their terms were up,” he explains. “The bank just used the properties as security, so I didn’t have to hand over any money except for the first property.”
After buying a home in Canberra for $249,000 – as well as the separate block of land next door in Tasmania for just $15,000 – plus a one-acre block of land with 180-degree bay views for only $25,000, Anderson and his wife left for Las Vegas, leaving the properties to gain capital while still providing income through rent.
Success: tax-efficient long-term investing
If it all sounds too easy, you should bear in mind that Anderson has had a good deal of fortune in terms of where he’s bought and the timing of his purchases. But underpinning his portfolio-building has been a number of
Foremost among these is his self-styled philosophy of “Keep, keep, keep”. Being patient and holding onto properties allows them to fulfil their potential increase in value – and no capital gains tax is payable unless you sell. “There’s no real way to avoid CGT, unfortunately. It’s just the government’s policy and every time you sell a property you’ve got to pay it,” says Anderson. “But by holding onto properties you’re effectively delaying paying CGT, and the money that would have gone to the government is actually working for you by still being invested in a property.”
Of course, CGT is just one of the tax issues involved in property investment, and to act optimally in all tax matters Anderson emphasises that it’s important to have a good accountant. “You want an accountant who’s going to find every taxable dollar for you without breaking the law,” he says.
He also urges investors to be aware of the tax deductions that they’re entitled to, and gives an example. “If you live in Sydney and you own an investment property in Queensland, you can deduct the cost of two return flights up there per year as well as two night’s accommodation and meals,” he says.
Anderson’s success story is impressive not only in its simplicity, its short timeframe, and the relatively small amount of starting capital, but also in the amount of risk he was willing to take on. As a young man he committed himself fully to property as an asset class. By buying strategically, and in different parts of the country, he managed to diversify away some of the risk. But, without the benefit of hindsight, this highly-geared investment strategy remains a highly
For Anderson, though, it worked. And it worked spectacularly. Planning to keep his Australian properties for some time yet, he’s currently eyeing a cabin in the mountains of Utah.
Storm Anderson explains the guiding principles that allowed him to build a seven-property portfolio from scratch in three years…
Buy to rent
“Don’t buy something because you personally would want to live in it. The chances are that it would be too expensive and also too costly to maintain. Always buy something that’s simple to live in and won’t cost you the earth every time something needs repairing.”
Be smart about where you buy
“Australia’s ageing population means rental properties for elderly people will be increasingly in demand. Being close to hospitals, public transport and supermarkets is important, and you’ll want to avoid too many stairs. Similarly, if you’re going for an investment property in a town where there are lots of students, like Bathurst, you’ll want somewhere close to the uni and close to public transport.”
Invest as much as you can as quickly as you can…
“…but use as little of your own money as possible. Using the bank’s money isn’t difficult once you have equity in a property or two to borrow against. If you grow your portfolio quickly, you’ll learn a lot in a very short time.”
Don’t be afraid of failure
“If you choose a bad property you’ll be in debt, but it’s not the end of the world. By doing nothing you’ll have lost the opportunity to make a gain.”
6 tips to success in property:
- Be prepared to sacrifice lifestyle luxuries for a while
- Hold onto your properties and invest for the long term
- Use a good accountant who will push the boundaries
- Don’t look just for places you’d personally want to live in – think about it from a tenant’s and maintenance point of view
- Look at long-term growth locations, not just what’s hot today
- Don’t fear failure