Chris Shine

Like many investors, my investment journey and life coalesced by accident, not by design. Like many others, I’ve also faced life’s struggles, including a marriage break-up, being alone, and having to start all over again.

I am now aged 50 and have been investing in property for about 28 years. I was married for over 20 years and together with my wife brought up two beautiful daughters who are now in their early twenties and getting started in life.

My marriage ended five years ago and I have been in a new relationship for two years with my new partner and her four daughters, who now live with me in my home.

Where my property journey started

I was born and grew up in Melbourne. When I was younger, I often heard people say their family had ‘done well’ with property ownership through the 1960s to 1970s.

How they had done this and what they had done were of course a total mystery to me as a kid, but the idea of property investing to grow my own wealth was definitely imprinted on me very early on.

What I now believe was a key influence on me was my mother’s unrealised ambition to create what she called, in a whimsical way, a property ‘empire’. Her idea in the late 1970s was to buy an old beach shack in a coastal WA town and redevelop it into eight to 10 holiday units for seasonal letting, using the capital from selling our childhood Melbourne home.

When the time came and we had relocated homes and schools to Kalbarri, WA, the local council denied a development permit for anything more than a duplex on that site. So my mum’s dreams of an empire remained only so much as a West Australian beach and a very healthy lifestyle!

It was her thwarted ambition resulting from a fundamental mistake in not doing research, and thus facing what we now call ‘investment risk’, that kindled in me the desire to do what my parents were not able to do at that time. 

After finishing my university degree and knowing I had a full-time income, it was an influential discussion that I had with a financially clued-up friend of mine in 1986 that propelled me into my first step towards owning a property.

Cameron was buying a two-bedroom unit in the suburb of Wembley, Perth, and asked me if I had any plans for doing anything, now that I had a secure income at the age of 22. I was all ears and went on to buy one of those properties. Cameron and I did a few career things together and he is now my trusted financial advisor for our family’s managed investments and super.

Stages of my property investment journey

My property investing journey breaks into four distinct stages when I look at it now in the context of the relationships that have framed my life.

STAGE 1 The early years and foundation property steps, circa 1986–2001:

1987

• Bought two-bed unit in Perth; sold in 1988

• Bought unit in Darwin

• Bought first home (owner-occupier), Camp Hill, Brisbane

• Sold Darwin to pay for reno work at Camp Hill

• Bought two properties in Toowoomba

• Bought eventual own home, Toowoomba
• Sold Camp Hill, Brisbane

• Bought Melbourne off-the-plan unit 2000
• Bought Toowoomba house next door

• Bought Toowoomba house adjoining that one

2002

• Bought four-unit complex in northeast corner of Toowoomba
• Bought adjoining house to later allow vacant land amalgamation and site redevelopment
• Sold one of the 1995 Toowoomba properties

• Major home renovation/extension
• House removal from adjoining property
• Boundary realignment to enlarge home lot and allow driveway access for development of house/lot adjoining that one
• Sold the other 1995 Toowoomba property to reduce own home debt to zero
• Bought two vacant land blocks near Toowoomba (house removed onto one of these blocks)
• Bought Queenslander house on 1,800sqm in Pittsworth

• Bought small cottage in Pittsworth
• Bought complex of four units in Pittsworth

• Sold small cottage in Pittsworth for profit
• Bought new second car for family

• Built project home on vacant block near Toowoomba
• Subdivided Queenslander house in Pittsworth
• Sold house, kept vacant lot

• Developed five new units on existing site in Pittsworth
• Held for cash flow
• Bought house in East Toowoomba

STAGE 3 Marriage breakdown and division of assets; recovery and stabilising of portfolio, circa 2009–13:

AUGUST 2009

• At this stage of my investment journey, the net equity in the portfolio was approximately $2.2m, out of a portfolio valued at $4.5m
• There was no debt on our major asset, the family home, and there was debt on every investment property
• All properties had been bought under my name, as the higher-income earner, to gain income tax relief annually
• My former wife and I arranged an amicable settlement wherein she kept the family home and had the intrinsic value to come from future redevelopment of the lots adjoining the home
• I kept all the current investment properties, some of which had intrinsic future development potential, as well as the debt on the portfolio
• Because of the equity-to-debt imbalance from forcing such a sudden change in the portfolio’s ownership structure, we worked with lawyers and the bank to manage a staged transfer of ownership of the home and the adjoining house to my ex-wife over an 18-month period, so I could trade my way out of some investment properties and into a sufficient loan-to-value ratio (LVR) to satisfy the bank
• At the end of this process we had divided the property portfolio and equity such that we each obtained $1.1m in equity held in the respective properties at the end of the transfer period

• I therefore held eight properties with lots of debt, and my ex-wife held two properties, including the family home, with a low amount of debt
• We moved forward from that baseline, on our separate paths since then
• I am happy to say that she went on to do the development of the two classy stand-alone villas alongside the home that we had long planned to create and is happy with that investment for her retirement funding
• I have had to trade out and wait out the last five years to get myself into a position to be able to realise the rewards of my biggest long-term property asset. That’s why I call this my recovery and stabilisation stage
• To be honest, time is a necessary thing to let pass, to become ready again to commit to new parts of our life, including property investment activities

• I moved into an existing investment property as a single man and owner-occupier – a dreadful time of my life

• I did a house removal project onto vacant land in Pittsworth, which was previously subdivided

• Sold East Toowoomba house
• Sold project house near Toowoomba
• Reduced debt on current own home to zero
• Lost paid employment position in a redundancy, due to cutbacks
• Changed to self-employed role full-time in property industry as an investment coach with Positive Real Estate
• Eldest daughter at university and youngest completing Year 12

• Sold house removed onto land at Pittsworth

• Consolidated overall debt position and entered ‘holding pattern’ to see through my daughter’s needs and re-establish myself and my portfolio financing position

STAGE 4 Forging ahead again and bringing home value for my future superannuation, 2014 onwards:

2014

• Revalued owner-occupier home and gained line of credit increase to cover costs of strata titling block of nine units
• Progressed with development application and planning for current redevelopment project in northeast corner of Toowoomba
• Set up SMSF
• Deposit to be paid on a Brisbane off-the-plan apartment as first investment property inside my SMSF

As well as having the income stability and certainty of progression that came with my first career as an army officer from 1986 to 2007, in many respects the chance to take postings in different parts of Australia opened my eyes to the opportunities in different markets. After buying in the Perth, Darwin, Brisbane, Toowoomba and Melbourne markets, we used to joke about trying to have a property in every port!

In truth, it was a great strategy that came to us from the diversity and the opportunity that moving around the country gave us. The motivation and the catalysts to action were there from earlier on, so the act of buying, renovating, holding and trading properties simply took some ‘get up and go’ resolve to make it happen.

My overall property strategy

My overall property strategy has been to create a portfolio of assets that will eventually enable me to fund my retirement, independent of needing government welfare, and also to allow me to assist my children financially along their way to getting established in life.

I would say this has been a driving goal that has set my direction in property investing, but the strategies I have used have been multiple and varied. They have included buy-and-hold off-the-plan deals, renovations/extensions, building on vacant land, house removals to vacant land, strata titling, trading properties, subdividing land and building.

Now into the fourth stage of my journey, my strategy over the next five to seven years is to trade out of the properties I have in my own name and transfer the proceeds into my SMSF after the debts are paid out.

I intend to buy income-producing investment properties in super, progressively over the next five to 10 years, to enable me to draw an income from my super fund after I turn 60 in 10 years’ time.

Financing my earlier investments

I threw just about every cent I could safely put into my first three properties, knowing I had an income to meet costs and that rent would be coming in to help meet the mortgage.

For example, my first investment property in 1986 was bought with an 87% loan. It cost approximately $26,000, so that wasn’t much cash. 

Five years later, when we bought our third property as owner-occupiers for approximately $110,000, we had saved and used $40,000 cash to make that purchase.

After that deal, I never used any cash again to buy an investment property; it was all done with leveraged equity, including borrowing to fund the purchase costs.

Property highlights

PROPERTY 1

Finance

In late 2004 we had completed renovations and extensions to our home, so the value from that and other investment properties we had at the time was starting to make itself felt with a low LVR and good serviceability.

I had just returned from seven months’ service in the army overseas in Iraq, so the logical thing to do was to buy another investment property, as we were relatively liquid at the time.

The property was financed under a line-of-credit facility with our existing lender, leveraging other existing properties in our portfolio at the time.

At this stage I simply followed the advice of the bank manager who was working with us. It seemed simple and easy to do, so we went ahead with it.

We didn’t use any cash for the deposit. We leveraged the existing portfolio with the existing lender, Westpac. At the time, Westpac’s interest rate was 6.62%.

No thought went into using other lenders; I went with the bank that we were working with for everything else.

Definitely I would do it differently with the benefit of hindsight. Having this asset fully financed by the same lender that we had used for all our other properties (including our home) was a mistake. We should have sought a line of credit secured against only three properties at most with equity in them at that time. It would have been a lot wiser to have used that to meet the finance deposit of roughly $40,000, and then sought the balance of the purchase price in a loan from another lender.

At that stage, I didn’t understand the supportive role brokers could play in helping an investor get onto the right lending platform/structure. In later years, this financing structure became a very difficult thing to manage.

Research

By late 2004, property values were nearing their peak in the Toowoomba area, and I hadn’t been researching any other property markets. I felt there was better value to be gained in the regional towns outside of Toowoomba, as the ripple effect would raise their values as well.

I used the monthly property magazine for the area that was widely used back then, The Realtor. I don’t recall ever using the internet for searching for properties on the market before about 2005–6. I got into this deal totally without guidance or support from others.

I was looking for undervalued, good-quality property, be it a house or unit. I read the property description and thought that four townhouse units being sold on a 2,000sqm block for $140,000 was too good to be true, so I rang the agent. The first thing she said was that The Realtor had misprinted the price; it should have been $410,000! I was still interested after that and went to do an inspection with the agent.

I decided to buy after I got the answer to my question on the value of each unit if they were strata titled. The agent said she could sell the four units for $125,000 each, if they were on strata titles. They were ‘in one line’ so I could immediately see the value in the buildings, as well as the fact that two thirds of the site was vacant land, so there was potential for future development there too.

It took me just five seconds to decide to buy this particular property. I just hope my body language wasn’t a dead giveaway at the time! Of course we still had to negotiate an offer price … and there was one other interested party involved.

The next day I made my offer knowing that the other party and I were both looking to get the best discount price we could, and that indications from the agent were that a price in the $380s would be acceptable to the owner.

I offered $386,000 on the basis that most people work in round numbers, and this figure was higher than the nearest round figure of $385,000, and a better offer than $380,000. It worked. 

Chris Shine's Portfolio (Click to enlarge)

Gut instinct vs hard numbers

For this property purchase, it was all gut instinct over numbers. I knew the finance could be done. So it was a matter of being able to see there would be future value, based on the comparative individual prices I got from the agent and also the potential to build more units on the site. This property represented over $110,000 in equity when I bought into it.

Performance

The property has been taken nearly to its full potential. In 2008 the building of five additional units on the site was completed. There has never been any significant vacancy in any of the units, and the rent has grown 25% on the new units since completion just over five years ago.

Of the original four units, two have been refurbished inside and two remain to be done. In 2011 when the refurbishment of two original units was completed for $24,800 each, the rent for each unit was able to be increased by $55 per week.

Compared to the others, this property has provided a number of ingredients for adding value in the one property: further development, renovation and now strata titling of the individual units.

At the time of the building project, this was the single biggest financial undertaking I had made: over $800,000 to do the project. Up until then, my highest purchase price had been $386,000 – on this property. So with everything about this one it was the biggest to date.

Exit strategy

These properties now serve a cash flow strategy very well, especially with current interest rates at around 5%. For the next step I intend to use the equity value of these individual units to support funding of my next development project.

When the time and prices are right I will eventually sell these units individually over two or three financial years to spread the exposure to capital gains tax and allow for progressive paying off of the debt in my portfolio.

Challenges

The main challenge this property presented was in the tighter lending guidelines banks applied in the aftermath of the GFC. In mid-2009 the bank revalued the property to ‘in one line’ status, as I had not exercised strata titling at this point. This took approximately $400,000 off the book value equity of the property and meant that suddenly, along with divorce proceedings starting up, a very tough time was upon me financially, in trying to hold and simultaneously divide the property assets with my ex-wife.

Fortunately, due to a very good credit performance and good track record with the bank, I was able to engineer a pathway through asset handovers between my wife and myself, as covered earlier.

Funnily enough, I wonder whether this could have happened if our lending had been spread among many banks at this stage – one of life’s mysteries, but from which I’ve learnt that there is a silver lining to every cloud!

PROPERTY 2

This was a brand new house that was built, whereas all my other properties at that time, except the Melbourne CBD unit, were old Queenslander-style timber houses or older brick units.

Finance

We had enough finance to get a construction loan for $194,000. We had previously bought the quarter-acre block of land for $10,000 in 2003. Timing was good with that land purchase as prices of remaining vacant land in the old part of the town ratcheted up to $48,000 within a year.

We used our existing line of credit for the builder’s 5% deposit and then a construction loan for the balance, so it was a 100% borrowing for the deal. The interest rate was approximately 6.8% by the time of construction in late 2005/early 2006.

Westpac funded the loan. The lender was chosen on the basis of the bank manager support I had at the time. Looking back now, I’m happy with the decision I made.

It was straightforward to get a construction loan from Westpac and then on completion to convert that to a standard variable residential investment loan. It provided a good experience base for my next construction project of five units in 2008.

Research

In early 2003 I was looking for a vacant land block in/around Toowoomba that I could do a house removal project with. I owned the timber house next door to our own home in Toowoomba and had designs to expand the land around the house and do an extension to the home.

While the timber house on stumps was somewhat bland on the outside, it had a great floor plan and had been a great rental house. It was worth recycling to a new location.

One day, driving between Oakey and Toowoomba, I turned left into Kingsthorpe and visited the local agent there to discuss my need for a vacant block. I found that there were six vacant quarter-acre blocks in Kingsthorpe that would suit my project. As land was so surprisingly cheap then, I decided to buy two of them for $10,000 each, when I really only needed one! Three would have been better in hindsight.

The removal project went ahead in early 2003, and then later on in 2005/6 a project builder house was constructed on the second vacant block.

I decided in 2003 that Kingsthorpe had to be attractive as an overflow town near Toowoomba; it had great appeal as a quiet, out of the way place that was only about 10km drive from the shops on the western side of Toowoomba.

It is adjacent to the Charlton industrial park development now, which has been built to service the Surat Basin expansion. So it was a good long-term place to buy into back then.

I didn’t use any research tool with this property. I simply used my eyeballs, mouth and brain! The main criteria for me were the price and relatively good neighbouring views or properties surrounding the blocks I bought.

The process of deciding on a builder for the second block was specifically based on approaching a volume-type building company that would do a suitable contemporary build of average finishes for a competitive price.

I wanted to limit the design costs, so I felt that a project builder would have a design that would suit that block with minimum fuss. I was also working away from the area for most of that time, so I needed a solution that was very hands-off from my point of view. The block was an irregular triangular shape and needed a design that would fit it, while creating some usable outdoor space. We also needed to install a grey-water dispersal system on the land, because there was no sewerage system in the town. The builders were able to accommodate all of these needs effectively, including managing the council approvals process.

I did not shop around for builders here. It was a solution that was pretty affordable and in keeping with comparable new homes in Kingsthorpe.

Gut instinct vs hard numbers

Again, the whole exercise of doing houses on two blocks of land in Kingsthorpe was based on gut instinct that property values were only going to go up, and whatever I did I could not go backwards with a 10-year timeframe.

I remember having to pause to think again about this a week after the two blocks of land settled in 2003. My wife had told me of the warnings of a work colleague of hers who reckoned I was taking a big risk buying land in Kingsthorpe. Ten years earlier he had bought vacant land there for $13,000, and then sold it for $10,000 about two years prior. When I heard this comment I thought, “Well, they must be going up again sometime soon! Glad I bought them.”

Performance

My original intent was to hold the house for at least 10 years. The cash flow from the house was positive, and it was never vacant. That intent changed with the need to rebalance myself after the divorce, and the property was sold after five years. The market was in a downturn in 2010/11 and I took a price cut. The selling agent initially listed it at $349,000.

Exit strategy

I sold it early due to divorce.

Challenges

The main challenge was the time delay between going to contract with the building company and getting a start on the property. This took a long time, I guess mainly due to the work pipeline in the area then.

There were also some council and utilities issues to sort out before a start could be made. All up, it was 19 months from signing the contract to getting the keys to the door. Not unheard of in property, of course, but it meant equity was being slowed down and tied up, when another deal could have been done.

Biggest mistakes, regrets, and lessons learned through my investment journey

My biggest regret and lesson learned was in my lack of knowledge about banking and finance, such that I didn’t understand the implications, risks and limitations of financing a growing portfolio with only one lender. If I had my time again, this is the second most important thing I would seek to change.

I would have sought out the services of a good broker and used a couple of different banks for different properties I got involved in. Because of this lack of understanding, I actually sold properties along the way that I know now I could have kept, with a more informed approach to managing my finance structuring.

If I were to start investing all over again

Once married and looking to buy my second property, I read as many property investing books and magazines as I could find, to try to learn a few ideas about property in advance. I had the occasional chat to other investors in a guarded kind of competitive way.

Now, if I had my time again I would want to have a specific and trusted mentor relationship with someone who could guide me from a combined vantage point of property savvy/experience and practical, knowledgeable financial guidance on lending for property.

For most of my journey, such people didn’t exist in the marketplace, or I didn’t know about them or what to look for and use in respect of finance and property guidance. Knowing what I know now, I wouldn’t be without a coach/mentor for a journey such as mine.

I would have maintained my market diversity in the middle years, instead of consolidating down to a regional market only. A big mistake, contributed to by my lack of knowledge of financing, as well as a burly bank manager telling me I had to sell, when I really didn’t need to if I’d done the financing a bit differently.

This article is from the December issue of Your Investment Property Magazine. Purchase the issue to read more.