If there is any way of dipping your toes into the property market, this was not how Tom Neivandt wanted to go about it. As a fresh-faced 21-yearold, he dove straight into the deep end.
A property in Geelong and a dream to renovate were on the agenda. But a lack of spare money and low wages were weighing him down. As a young person with no experience in the property market, it could have been easy to see Tom’s situation as predictably bleak.
Like many young investors, Tom had a drive to achieve more than what was laid out in the regular nine-to-five grind.
“I have always been excited about the idea of growing wealth,” he says.
“Someone once told me that a fulltime job will provide weekly cash flow, but it won’t give you wealth. You need to invest your weekly cash flow to create long-term wealth.”
A steep learning curve loomed ahead. But with an end goal in mind and enthusiasm to boot, Tom managed to stay afloat.
Since 2009, Tom has owned four houses. With one sold, he retains a portfolio worth $298,000 across three properties. Big plans remain at the forefront of his mind and it’s safe to say there are no signs of slowing down.
Tom says that young people should get into the property game as soon as they can. Owning property can seem daunting and there are certainly a lot of things to learn. But if young people are willing to look, there is always help for those who seek it.
“I treat everything as a learning exercise; I believe that everyone you talk to offers something for you to learn… I always try and draw as much knowledge as I can from everyone I talk to in the property field.”
HOW HE DID IT
Tom began saving for a house from the age of 18. Living with his parents and working as a sales representative, he was able to save up the $22,000 needed for a 10% deposit on his Geelong property.
Unlike many property investors, Tom chose not to rent out his property straight away. Instead, he went in with the intention of renovating himself. “This took me eight months while I was living in the house, and let me tell you it was the hardest eight months of my life; I’ve never worked so hard,” he says.
“It was a full renovation job, and I rented it out as soon as I finished. This was where I got my first taste of property investment, and this motivated me to start saving for the next one.”
Renovating seemed like a logical way of adding more value to a property. Throughout Tom’s investment history he stuck to a simple strategy: buy, renovate, rent and hold to increase positive cash flow.
Sitting on a wage of just $45,000 meant such a strategy would not be a simple process. This inspired the need to come up with some resourceful ways to save money.
“Because I don’t have a lot of money to spend on the renovations, I try to buy second-hand products where I can. I never pay full price for materials because I will buy them on sale or second hand.
“On the first two renovation projects, I did the majority of the labour work myself to save money. This really helped to keep the costs down.”
Tom also managed to save money in other ways. Throughout his investment history, he has never paid rent for a property, either choosing to live in the home while renovating or live with his parents.
“It was beneficial in a sense that it allowed me to save a bit of money. But with some of the renovation projects, it’s just not practical to live in there because you’re painting, there’s dust everywhere, and you’ve got tradies coming and going everywhere. I’ve never actually rented a house for myself at all.”
This approach proved to work well for Tom. Renovation made homes more appealing, adding some serious equity. After holding on to his renovated Croydon property for two years, Tom decided it was finally time to sell.
“I purchased this house for $295,000, renovated and lived in it for two years, then sold it for $426,000. I was pretty happy with this result.”
Tom had increased the value of the property by $161,000 and came away from the sale with a $64,800 profit.
However, he admits now that he could have done things a little differently.
“I’m certainly not a qualified tradesman that’s for sure,” he laughs.
“One regret that I have about the first three properties is not hiring enough trade is to assist in the renovation process. I have realised now that there are a number of tradies which are very good value for money. It’s amazing how much value a coat of paint can add to the house, yet it only costs approximately $5,000–7,000 and takes 7-10 days.
“I now look at the bigger picture when renovating. If I spend $1 on a tradesman, does it bring a return of $5? If it does, then I have just earnt $4, and it speeds up the process so I can move on to the next house.
“My mindset has changed now. With a bit more experience, I can make a more informed decision.”
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GETTING THE BEST DEAL
Now working as a national sales manager for a tool company in Melbourne, Tom has a lot more money to throw into his projects.
“It comes in handy every now and again because I get some pretty good deals on tools. It makes it pretty easy for renovating,” he says.
But good tools are not the only requirement to develop a successful portfolio. Tom had to be smart with his finances. Instead of going straight to the bank for a loan, he decided it would be better to shop around.
“There are some very competitive rates around at the moment and I guess mortgages are naturally quite competitive. There are so many different financial institutions around that are all offering their own.”
With little spare time on his hands, going to a mortgage broker looked like the most practical option.
“I love the concept of a mortgage broker; I think this is such a fantastic idea. With a mortgage broker I seem to get a lot more advice and it seems to be much more of an independent view of the market. Whereas when I’ve met with the bank, of course, they’re only interested in selling their own products.”
While banks were more interested in pushing their own rates, mortgage brokers were more committed to finding out what was right for the situation.
“[Banks] try and steer you away from a choice if they don’t offer it. But when you meet with a mortgage broker, they’ve got 20 or 30 different lenders so they can try and choose the best one that’s right for my financial situation. At the same time, I get a bit of advice and they’ve got their own experience where they can point me in the right direction.”
The right direction proved to be obtaining a mortgage with an offset account. By keeping money in an offset account for the property that Tom lived in, he was able to keep repayments down as low as possible.
“I can save a few hundred dollars in repayments each month when I keep my money saved in the offset account for my PPOR.”
There are always ways to save a few dollars when investing in property.
Young investors need to be smart about their money to make it stretch as far as it can. Tom suggests making a bigger deposit as an effective way to do so.
“I always try and pay at least a 20% deposit so I don’t pay lenders mortgage insurance.
“You’ll save costs in the long run: the more mortgage you put down, the lower your mortgage repayments will be and, if you’re renting out the property, you’ll also get rental income, so the bigger the profit you make each week.”
LESSONS OF THE PROPERTY GAME
The performance of a property has always been a key factor of Tom’s investment strategy. Extensive research on every purchased property has helped him get to where he is today.
“The main thing I was looking at was rental yield. I wanted to buy properties where I could renovate to get the properties positively geared. With the Mornington property, I mainly bought it to build capital growth. The five-year trend for growth in Mornington is 26%, which is considerably high.”
Now living in his Mooroolbark property, Tom is looking to undergo a renovation project once again. In no rush to finish, he plans to sell at the end of the year.
“If I live in the house for at least 12 months, then I don't pay capital gains tax,” he says.
By setting aside a renovation budget of $50,000, Tom estimates that he should be able to come away with a profit of around $67,000.
While this is an impressive assessment, now at 27 and being a bit more clued up, Tom says he would take a slightly different approach to investment now.
“If I was to do it differently next time, I would buy properties which are closer in to the city.
“If you renovate a property to add 50% more value, then it’s best to buy in an area which has a higher median house value. A hypothetical and simple example is: if you buy a house in the outer suburbs which is worth $300,000 and you add 50% value then you have profited $150,000. But if you buy a house in the inner suburbs which is worth $500,000 and add 50% value then you have profited $250,000. And it costs the same to renovate no matter where the property is.”
While there could be considerable money to be made by investing in inner city suburbs, Tom is still comfortable with the decisions he has made. His current properties are doing well and with more plans in the works, he is not done yet.
With the prospect of another sale on the cards, Tom is again looking back towards his first investment in Geelong. Although it has a lower value compared to his other properties, it makes up for it in potential. With a few cosmetic changes, the property is easily big enough for subdivision.
“My long-term plans for this property is to sub-divide the back, then sell the yard. I haven’t done this yet because I have had my money tied up in the other properties. I will hold the original house because it is bringing in a positive return and I don’t see any purpose in selling the property at this stage.”
