Farmer Paul Brooks was being battered by drought and the share market before ploughing headlong into property investment. Three years later he impressed our Investor of the Year 2011 judges by reaping over $1m in annual rent from a growing $10m portfolio
Paul won a $3,364 prize pack consisting of:
- 12-month Real Estate Investar membership valued at $2,789
- myrpdata reports valued at up to $200
- How to Grow a Multi-Million Dollar Property Portfolio, valued at $29.95 from Metropole
- Thriving Not Just Surviving in Changing Times, valued at $29.95 from Metropole
- 12 month subscription pack including Your Investment Property, Your Money and Your Mortgage magazines worth $315
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PAUL BROOKS' STORY
A few years back, farmer Paul Brooks was discovering that a decade of drought had dried out much more than his family’s crops.
“I still loved the farm but we were making nothing so the passion just starts draining out of it.
“When you’re trying to make a living you must have passion and you must have income and without one or the other it just doesn’t work.”
To make matters far worse, Paul lost $400,000 in the Opes Prime Stockbroking collapse and feared that his farming operations would not be enough to support his family. He managed to free up about $500,000 by selling some water allotments back to the government and had considered using it to pay off some of his mounting debts.
“But, I started buying a few property magazines and things and I read a quote that really changed things for me by John F. Kennedy: ‘There are risks and costs to a program of action, but these are far less than the risks and costs of comfortable inaction.’”
Forty-six year old Paul has certainly been active since then. In less than four years he has boldly amassed a $10m portfolio and developed a sophisticated investment philosophy that has earned him an honourable mention in the fourth annual YIP Investor of the Year Awards.
Taking flight
Worried about his financial future, Paul took a few property investment courses and became a serious student of the craft, spending months reading texts and researching the Australian market.
“I got connected with an internet site and they only specialise in high cash flow properties,” he remembers. “This place Moranbah up in the mining towns near Mackay kept coming up, and they rang me one day and they said, ‘we’ve got this property up in Moranbah and it promises 10% return. It’s going for $600,000, but you’ve got to let us know by morning.”
Paul says he had no way of knowing whether the property was worth what they were asking, but was intrigued by the promise of good cash flow and had heard stories about investors striking property gold in mining towns.
“So I actually fly a light airplane that I used to inspect my crops on a large property we used to own in NSW. Anyway, I couldn’t sleep that night. I tossed and turned and I jumped in the airplane and flew up to Mackay.
“I actually left in the dark,” he laughs.
Five hours later, he landed at the BHP airstrip in Mackay, more than 1700 kilometres from his home on the NSW/Victoria border. He immediately called the property agent from the taxi, saying he wanted directions to the property so he could take a look. The agent was understandably startled, but Paul says that he was much more surprised by the agent’s response.
“He said, ‘we haven’t built the place yet.’
“The idea is they sign you up and then they go and buy the land and build the house. And I said, ‘so why do I need you?’ We are off to a very bad start because there is no honesty in this relationship.”
Going it alone
Paul ditched the agent, but found a lot to like in Moranbah and stuck around for a week to get a firsthand look.
“I learned from the course that a good idea was to meet with local officials and get some inside information, so I met with the town planner and he said, ‘look Paul, what people don’t realise about this place is that it’s land-locked.’ He said, ‘there’s mining all the way around it and the town just can’t expand outwards.’”
Paul’s flight to Moranbah came in the middle of the financial crisis, but with more than 40 mines in the area and billions of dollars in new investment coming in, he saw a lot to make him believe the region was set to explode. Also, he says, the area’s heavy coal production was a definite plus.
“Port Hedland and all those places were all iron ore, and now the first thing that stops when there is a financial crisis is building, which is directly related to iron ore.” But he likes the area’s coal activity, he says, because coal tends to be more of a necessity regardless of the economic cycle.
Paul also was pleased to see other mining operations thriving in the area including uranium nitrate, mineral sands and coal seam gas.
He certainly made the most of that short trip. By the time Paul climbed back into his cockpit he had snatched up three adjacent lots at $120,000 a piece and negotiated with a builder to put in nearly identical 4-bedroom houses at a discount. Each house cost him just $470,000 total, and he was more than happy with the projected $800 per week they would each bring in rent.
And Paul found himself even further ahead by the time they were completed six months later.
“The great thing about doing it all yourself, and I’ve read this time and time again, is that it gives you instant equity for yourself. You know if I go and buy a house and land off of some bloke, everybody’s had a cut out of it. The builder’s had a cut, the developer’s had a cut and the agent’s had a cut out of it.”
Paul laughs when recalling just what he accomplished because of that sleepless night and early morning plane ride. “You know, my builder later said, ‘we don’t know what that plane cost you but we reckon you paid for it on that trip.’ And you know what? I actually figure it’s been paid for 10 times over by now.”
And the numbers might just bear him out. In the three years since, the weekly rents have jumped to $2350/week, and the houses have tripled in value. On top of that, the capital and rental growth have helped him get financing to fuel the string of successful transactions that followed.
Diversification
“So while I had that, I thought OK I’ve been naughty by going against everything that I’ve learned in the investment courses by putting all of my eggs in one basket, so I figured I better go down to Melbourne and buy a quality blue chip type investment to steady the portfolio so to speak.”
Paul says Melbourne sparked his attention because it was red hot at the time, and it is the closest capital city to his rural Victoria home near the NSW border. Also, he says, he heads down there quite often for footy and to visit his wife’s family.
In fact it was one of those trips that led him to his next purchase. He had some downtime while waiting for his wife in the city’s Hawthorn area and saw a sign announcing a new development.
“It was a really good little spot – it ticked all the boxes. So anyway, I rang the guy the next day,” he recalls. The trouble was, construction had not even started on the Hawthorn unit, but the builder said he did have one finished near the beach in St. Kilda.
So, Paul went down to take a look and liked what he saw.
“Come to think of it he was a great salesman, because I asked the guy, ‘now, if you were going to buy one, would you buy the one in Hawthorne or would you buy the one in St Kilda?’
“And he said, ‘that’s simple, I’d buy one of each.’ And me being impressionable and a bit of a loose cannon I bought one of each.”
Financing did become a bit of a sticking point for the long-time farmer especially because, he jokes, he had never paid himself enough. He found that was easy enough to fix.
But he also found that the banks still wanted to see some more cash flow, so he decided to by a long haul truck after watching his brother do well with his own trucking company. It’s turned out to be a good investment, but he was mainly after the boost that the cash flow would give his loan applications.
“So that gave me a little bit more horsepower to continue with. And I had no interest in trucks whatsoever and would never have bought one, but my true passion for this job [property investing] was really growing.”
The combination of cash flow and capital growth made it easy for him to stick with the same bank, which was usually happy to bump up his portfolio line of credit. He says he knows most advisors tell you to spread your loans around, but Paul got sick of explaining himself to separate bankers and saw another plus to having his financing in one place.
“The good thing about a portfolio line like what I’ve got is that it is sort of like your own report card really in that if you have done a good job and you’ve invested in the right areas and you’ve got good capital growth the bar just keeps going up and up. But if you haven’t done the right thing and you’re not in a good area, the bar can go down.”
And Paul proved time and again that he was doing the right things.
After changing things up a bit with the properties in urban Melbourne, he turned again to higher-growth mining centres for his next acquisitions.
In pretty quick succession he bought a simple house near Victoria’s main coal generation facility in Traralgon and then set his sights on the rapidly growing Queensland port town of Gladstone.
But his research showed that the lower end of the market in Gladstone was slowing down, while he did see a shortage of high end units. So he went up market and picked up an executive rental the builder guaranteed would give him 9% yield.
Drawn to Development
He says he has been very happy with the performance of the Melbourne, Traralgon and Gladstone properties, but it’s hard to compare them to the magical results he got on his first go around.
“They are still performing quite well – there’s steady growth. But then again you keep looking over the fence at the Moranbah properties – it’s like that hot ex-girlfriend you had that one time, and you just can’t forget about her.”
And the allure has been too much for Paul to resist. He’s just about to finish a 6-unit townhouse development up in Moranbah that he projects will give him a 23% rental yield. Also, he’s already had them valued at about two times what he paid to have them built. With those pretty hot results under his belt, he’s putting together plans to develop another 7 units on his latest lot in Moranbah.
He says a lot of people have told him that he has done well enough financially now that he does not need to deal with the hassles of property development. But it is clear that this farmer turned serious property investor still gets a thrill out of harvest time.
“If you’re really going to make your own luck then the thrill is to start with nothing, whether it be a bare block or buying an old house and knocking it down. I like to start from scratch and go right through the development stage, getting the DA approval and everything else and actually turning nothing into something.
“I’m really enjoying it to the point where I’m not spending nearly as much time on the farm. I’m concentrating much more on this to the point where I’m happy and love spending 3 or 4 hours on the iPad researching properties, areas and rents and things like that. You know it’s not at all like a job.”
Judges’ comments
“Paul Brooks has an honest and disciplined approach to his investment strategies. You can only admire his tenacity and his ability to redirect his life when, as a farmer, he was faced with going broke. He has a balanced portfolio and entrepreneurial flair, these are a winning combination.” John Kovacs, NMD Data
“A Farmer who saw his assets and cash flow drying up with the drought took action to change his fortunes and move from victim Farmer, to victorious investor! Paul has built an amazing property portfolio worth $9.5m in just two years by jumping ship with $500k and investing in very positive cash flow property earning rental income of $1m in 2 short years.” Rachel Barnes, Property Women
Paul took an informed risk buying into a mining town which has provided an ideal launch pad for his future investing. His timing couldn’t have been better, buying at Moranbah just as prices were taking off and being smart enough to recognise the intrinsic lack of developable land would limit new housing supply. 11 investment properties over two years must be close to a record. Well done! Tim Lawless, RP Data