The Seven Day Weekend

I'd like to acknowledge my mother for initially sparking my interest in real estate in general. My grandfather was a stock and station agent in Harden in NSW, and his real estate business was run in conjunction with the family farm.

My prime reason for becoming a property investor was that my goal was not to work for someone else. When I was a young real estate agent in Newcastle, one of the older partners in the firm I was in told me that he thought the easiest business in the world was collecting rent - I've never forgotten that!

Over the years, I have invested with my two brothers, Andy and Rob, and I don't think you could ask for better business partners (or brothers) - we have had lots of laughs along the way, and have been creative with the properties that we have had together.

Like many other investors, I have also had business partners, and some of these partnerships have been fantastic and some have been challenging, but all adding to a huge knowledge base of different deals and scenarios covering pretty well all aspects of property.

My Story

My property journey actually started when I was very young, around 20 or 21, and like most people, I started buying residential properties. My first little house was in Newcastle, NSW, and cost me about $17,000. I was working as a real estate agent and property manager and I was really interested in renovating, so I used to renovate properties on the weekends, after work.

I was fairly aggressive. I bought cheap houses, flats, semi-detached properties and renovated madly, turning them over and making pretty good money. But after a while, I realised that I had quite a few issues. I was pouring the profit from each previous renovation into the next house. So while I was making good money - I sometimes made $50,000, which was double my annual income at the time - I was pouring that money back into the next renovation. It was like playing a gambling game because I was always hoping that the next renovation was going to go well. It was a bit tricky.

One of my old bosses, a partner in the firm that I was with, had a great big ledger that he used to pore over every day. He was planning to leave the firm in about 12 months' time, so I started to talk to him every day about what he was doing. He told me that this ledger contained all his own properties, some of which I was managing for him. He had about 20 or 30 properties at the time; half of them were commercial and half of them were residential. He showed me all the ones he had bought over the last five or six years to get ready for his retirement.

One day he told me something that stuck in my mind. He said, 'I don't buy anything unless it pays for itself plus puts a little cash in my pocket from the very get-go.'

I remember the loan I got for one of the first places I bought. It was through the Newcastle Permanent Building Society and the interest rate was 17.5%. This was back in the early '80s when interest rates were really high. At the time, my solicitor told me he thought I was mad to buy this property. But what this old boss had said to me was like someone switching a light on. He also told me that I should be looking at some commercial properties, some shops and things. Like everyone else, and like a lot of people now, I

didn't know anything about commercial investing. So, he gave me a few little tips, and that led me, almost by accident, into a commercial property that a friend was selling - a butcher shop.

But let me go back a little bit to tell you how it all went down in the early days.

I was making great money from the renovations. At one stage, I had a block of flats and four or five houses, all in Newcastle. I was living in one of the flats on the beach and it was all very nice, but I found that I had tenant problems and things constantly going on. I was managing the properties myself, so there were constant phone calls with tenants. Some of the properties were quite negatively geared because of those high interest rates. So even though I was earning a fairly good wage, I was pouring all my money back into the renovations and supporting the mortgage payments with the cash I made when I sold the property. I began to think I didn't want to go on like this for much longer. Interest rates were so high, and there was always the risk that they would go even higher.

I remember being a little bit scared at the time, and I didn't have a mentor. I would talk to my friends about it, but being young, a lot of them didn't have any properties, so they didn't really understand what I was doing. They couldn't really offer any advice or no valuable advice. So in those first five or six years, I would sell a property just because I was a little bit frightened. I realise now that I should have held on to some of those properties, and I probably would have if I'd had someone to tell me what to do. I made a lot of mistakes in that process. I also felt that I wasn't shopping around enough at the time. I was in this Newcastle bubble. After I started buying commercial properties in Newcastle, I did start going to Sydney, but I probably should have gone to Sydney a lot earlier. That was another result of not having a mentor or a peer group that I could talk to about it.

I certainly have that now, and the rise of social media has helped many people to have that, too. I missed out on a lot of opportunities and perhaps hadn't been hard enough in some of my negotiations. Because I loved renovating, I had based the decisions on buying the house or the flat on emotion. I would get tied up with the emotional view, imagining how I was going to redesign the property this way or that. That probably cost me a lot. I also realised that my renovation projects probably had a limited life span. When you buy a property in times of high interest rates, it can be quite hard to raise the money you need to renovate, unless you've already got it.

But back to the butcher shop story.

I had all these things going on which were doing well, and I guess from the outside it all looked great. I was 24 years old; I owned a lot of property, even a beachfront block of apartments. But that old boss had put that little bee in my head about commercial property.

One day, a friend of mine who was doing the same thing as me, buying houses to renovate, went to an auction and bought this old butcher shop in Carrington in Newcastle. Within about three weeks of buying it, he confessed to me that he really didn't know what he was doing, and had too much going on. He asked me if I would like to buy the property from him. It was vacant, so I agreed to have a look at it.

It was in the main street, a free-standing building with a huge, long backyard to it. My mate only wanted to move it on, so he was happy to take virtually what he had paid for it, which was around $33,000. I rang up my old boss and he agreed that it sounded great and that I should just clean it up, but not do too much. He suggested I clean the glass, get an ad in the Newcastle Morning Herald, find out how much the nearby shops were renting for and put a number on it. So, I did all that. It was a pretty easy renovation - I swept the floors and cleaned the windows.

Within a matter of weeks, a guy approached me and said he wanted to have a little workshop in the back. The shop had a big, old cool room, and he said he would remove that. He wanted to make fretwork for federation houses that were all the rage at the time. So I put him in there on a three-year lease on rent of around $10,000 a year. It was quite a high rent for the investment that I'd made, which was fantastic. So Bob was in there working away, and the place looked great.

About six months on, I decided to get the bank to do a valuation so I could get some money out of the property and find another one. The valuer came down and walked around with his clipboard, measured it up, and checked the rents of the shops around the building. Then he rang me and confirmed that I was getting the right rental for the property. He carried on about other things, like square metre rates, all that type of thing, which I didn't really know much about. When I asked him for the magic number, he said he was going to value it at $100,000. At the time, it was just gob smacking. I think I only spent about $250 cleaning it up, so it was pretty amazing. Obviously, I had bought reasonably well at the start, but even if I had paid $50,000 for it, it would still have been a big increase. So, I refinanced that property and decided to do this again.

One thing to note - that butcher shop property had a big backyard, but because I wasn't aware of upsides and how to engage them at the time, I missed out on the opportunity to increase my equity by chopping off the backyard and doing a residential development out the back. It was less than 12 months from purchasing to refinancing. Several years later I sold the property to Bob, the tenant, for around $150,000. He approached me in a car park about four or five years ago and just about hugged me because he's made a fortune out of it since then.

That whole experience taught me about win-win situations. Most people think landlords are just there to get every last dollar out of the tenant. But I realised that the tenants' comments and inputs could be really helpful to me. I realised it was great working with these people because they are business people, too, and although I'm not in business with them, I want their business to go well.

With the butcher shop, anything the tenant suggested or wanted to do to the building, I let him do because I felt that it was going to help him along. And it did. That taught me about being a...