Mortgage Broker Home Loan Strategy for Building $7M Portfolio
Garry Harvey a home loan and mortgage broker expert, worked in many different jobs before he found himself in property investment. He worked at McDonald’s, in the car industry and even in the building before he made his way to the mortgage broking business. Despite the discouraging responses from people, Harvey still was determined to enter the investment scene which began by buying his first official property with his wife. His current portfolio holds 32 properties, valuing up to $7 million.
In this episode of Property Investory you will be able to hear how Harvey managed to build up his portfolio despite facing some obstacles and what strategies he uses when buying properties to get the most cash flow. Tune in to hear more!
A typical day for Harvey usually revolves around his clients and meetings which keeps him pretty occupied in his business.
My days are pretty varied, but it’s a lot of loan applications, strategizing with clients, client meetings. Well, I do talk through, with my clients, about some of their property decisions as well and provide some guidance there. I wouldn’t say I would provide advice. It’s a pretty strong word in this industry, so it’s more around, you know, education and guidance, understanding what they want to try and do and what types of investments might help deliver that. And I think that’s the best way for people to learn as well, to be honest. So that’s pretty much my day. I keep pretty busy doing it. And yeah I attend a lot of client meetings, I try to get out and see my clients, in their home or office to provide that level of service.
Harvey believes providing an overwhelming amount of advice can push his clients away, so he focuses on guiding them so they can make their own decisions.
I draw out a lot of things and I do cash flow modeling for people then in a very simplistic way, so they understand it because it’s not actually that complicated. But sometimes a big spreadsheet can look a bit daunting, particularly for new investors. So I try to keep it really simple and make sure they understand that at each point.
Prior to working with investors, Harvey shares details about his upbringing, where he lived in different parts of Australia during his younger years.
I grew up in Adelaide. I was born there and spent the first 12 years of my life there, moved around a couple of times. But lived pretty close to the beach, so that was always nice growing up. Then my father got a transfer for work back in 1987, so we came, the whole family moved over to Melbourne and I’ve been out in the Northeastern suburbs of Melbourne ever since.
Despite living in Melbourne for most of his life, he still has fond memories as a kid in Adelaide.
I was a typical young boy, I guess I loved road and push bikes and skateboards, and hanging out at the beach. But I just remember spending a lot of time down at the water. Which was good. It was interesting. I think about it a little bit, I’d go down to the beach on my own. Probably from the age of eight upwards, you know, and then today when I had my own kids many years ago, you know, I wonder whether I would do that now, it’s a bit of a different kind of kind of world perhaps. But yeah, we were always free. Mum always knew where we were and just had a lot of fun, played footy, a little bit of cricket. So a pretty typical young kid, I guess.
Regardless of being away from the beach, Harvey continued to enjoy his life as a kid in Victoria.
I really enjoyed that but that continued when I came to Melbourne. I was fortunate enough to live in a great street. We had lots of teenage kids in the street. It’d be nothing for us to have, you know, a dozen or 15 kids all hanging out in the street after school each day. So yeah, we just had a good environment to grow up in, always something to do.
Harvey reveals how he did not have a strong passion or let alone an interest for school.
Well I was never that interested in school. I kind of just got by to be honest. I didn’t really know what direction my life was going to take. After high school, I still remember, I didn’t even pick subjects that really had that much of an interest to me. It was kind of bizarre. Yeah, I felt that I probably should finish year 12, but I didn’t apply for uni and I was only about one of six or seven, I think in my year that didn’t go on to seek a place at uni. But I’d been working from the age of 15, just doing part time jobs. Hospitality and I did some gardening work and things like that. So when I did leave school, I actually ended up working at McDonald’s full time for about three or four months.
Because I had been there part-time while at school. And while I was just kind of working out what I wanted to do, they said I could work there full time and that’s what I did, really. So I got sick of eating McDonald’s cause that’s pretty much what we did, most days. But I enjoyed the camaraderie in that job, I met a lot of good people and still get along with those people I worked with back in. That was in the early nineties. They’re still friends of mine today. So it was a great place to work and you know, there was a lot of discipline in the store that I worked in and it taught you a good work ethic and I had a lot of fun. So yeah it was really good. I spent probably two years at Maccas, maybe two and a half.
And even back then, were they still calling it Maccas or was that a term that came up more recently? Because I can’t remember when that was coined.
Yeah, we used to still call it Maccas yeah, gosh. And then I ended up doing all sorts of jobs. I ended up doing their maintenance work. I remember starting work at two o’clock in the morning, three o’clock in the morning. The maintenance, that’s when the maintenance person started to clean all the floors and everything to get the store ready for the next day. So sort of tried to try a bit of everything really.
After working at McDonald’s, Harvey shares what he went on to next.
So then I worked in a factory which was local to where I was living. We were making electronic transformers for the telecommunication sector. So I did that for probably about five years with a little bit of a gap, where I worked in the car industry for a year just to try something different and to get out of the concrete walls of a factory. I didn’t really enjoy the car industry that much. I’m glad I did it for a bit of experience, but it wasn’t really for me. And then after the five years in a factory, I just had to be outdoors. I’m a bit of an outdoors person. I just said, ‘look, I’m going to get into the building industry’. I had no idea what I was going to do and how it was going to look.
But I remember because at that point in my life I’d borrowed money for a car and borrowed money for a motorbike and you know, everything was fine while I had this steady income coming in. And then when I decided to make that change I basically became a labourer on just a domestic building site. So my salary dropped a lot and I, you know, that reality of, well now I’ve got all this stuff I can’t afford, so I kind of dismantled all that, sold it off and just set about learning a whole range of different things in the building industry. Because I just, I love making things and I did it for a couple of years. I travelled overseas in the late nineties for six months with my now wife. We did a bit of a trip around the world and then when I came back and started my own business, I had that business going for about 18 years. I only got rid of it maybe three or four years ago.
PROPERTY INVESTING JOURNEY
We discover what led Harvey to find himself in the mortgage broking business…
I started in 2006 and it was an interesting way into the industry because I was 6 years my property journey at that point. I started in 2000 and the mortgage broker that was helping me at the time said, ‘will you come in for me all the time for money? Why don’t I teach you how to do it yourself?’. And I hadn’t even thought about it. Well, I mean I was a tradesperson but I wasn’t a qualified tradesperson. I just did all sorts of different things. And when he suggested that and he showed me the modeling of the business, it really appealed to me. And I got started that way in our transition probably for about seven or eight years, to be honest. I did both roles part time because at that point in my life, I couldn’t afford any dip in my income because of my commitments I’d made as an investor.
So I figured, I knew that building a mortgage business is time, it takes quite a bit of time, particularly to build it the way I wanted to. Just, you know, I don’t consider myself a sales person. I just like to help and share information with people. So, you know, the phone doesn’t ring off the hook when you first decide to be a mortgage broker. It takes a long time to get the word out there. So I did it part time for a good six or seven years and eventually went full time, I guess maybe four or five years ago.
As Harvey was only mortgage brokering part time, he did have another job to cover his everyday living expenses.
We used to restore brick work on old homes, so periods to old homes, it is a technique called ‘tuckpointing’. So we’d repair that old tuckpointing, which is on the facade of those old period homes. And yeah, so I did that and it was…when I look back, it was quite good because you didn’t get a lot of interruptions in that business, you know, we could be on jobs for, you know, weeks, months, so you’d just chip away each day at a section of the brick work. And so, it allowed me time to take phone calls and yeah, if I had to duck out and seek clients during the day, it didn’t really inconvenience the way that business ran.
Harvey goes on to explain how he found himself in this type of business and why everything he did was all done by hand.
I was working with a bricklayer. I wanted to learn how to lay bricks. And so I did that for quite a while, maybe a year or more. And apart from laying bricks, he would do this, this tuckpointing, which is basically replacing mortar in a specific way on these period homes. So when he showed me that I had a lot of interest in it and I thought, I could really see myself creating a business doing that. I’ve got a lot of patience and you certainly needed that with that job, and I had a lot of pride in what I did. So at the end of the day you could look back and see the finished product of what you’d done that day. And anyways, we’re working for happy clients too, because they’d come home from work each day and you know, see the improvement to the front of their home. So I kind of just fell into it really. And just had a go.
Harvey explains the steps he encountered to find his way into property investment, as well as the influence of the people he surrounded himself with.
I think my parents were probably a little bit risk-averse when it came to a lot of investment loans. My parents hadn’t invested in property. But you know, I’d speak to a lot of people, I’d speak to builders and developers and I’d just hear all this stuff about what they’re doing, what’s possible, and it just appealed to me. I just felt I had to go and learn this stuff. I didn’t know really what it looked like at that point in time. And I had a few close friends where we would talk about stuff and probably inspire each other a little bit. And one of them told me, I still remember the day I bought it, Robert Kiyosaki Rich Dad, Poor Dad. I didn’t read it though I bought the audio and just listened to it in my van.
I just listened to it constantly, just over and over and over. And it really resonated with me, what he spoke about. And then I just set out to try to learn to, you know, build something in the background while I was working. Because I knew that just working as well, I was a laborer in a sense. In my business it was all manual labor. It was only going to get me so far. So I just had this urge to learn that there’s got to be another way to try and advance yourself. So yeah, a couple of good friends certainly were encouraging and I know not everyone is. It’s quite interesting when you look back, you can get quite excited about what you want to do and you just kind of get shut down a bit by other people.
I just sort of kept close with the people that were encouraging and, and I had listened to this material and I was learning a lot. And then I guess it just gave me the confidence to just start, you know, I, just because there wasn’t probably anyone getting this. I was telling my parents what I wanted to do and because I hadn’t done it before, they didn’t really understand it and couldn’t offer me, you know, that encouragement, you know, probably a bit worried about it. But I just had this attitude, came to this world with nothing and I’ve got nothing to lose. So I just went on this journey I guess of learning and having a go at it, and it took me a little while because I’d often ask people their views and opinions and a lot of it was negative. So I ended up just doing a lot of good in silence to be honest. Like I said, I had a couple of close friends where we’d talk you know, I could chat with. But you know in my greater network, I guess I just couldn’t, you know, I felt like I was defending myself all the time. So I just thought, well, you know, bugger it. I’ll just keep going.
Harvey goes on to further explain how his parents reacted to what he wanted to do.
I wanted to invest in property and I just think they, you know, it involves borrowing money and they probably, as parents are, they are just looking out for me, you don’t want to see yourself get into something you can’t deal with. I think it’s like most things, if you don’t understand it, you can become afraid of it. And you know, just want to keep it a bit distance. So I think it was more of that with my parents and yeah, they certainly didn’t put me down about doing it, but they weren’t throwing the encouragement around. So, I don’t know. I guess I just had this feeling that I just want to go on and learn this and do it and, and yeah, just sort of, you know, set aside what other people were saying. I just kept pretty focused on what I had to do and worked hard and I worked a lot of different jobs and hours and things like that to just make sure I could keep it all together and just back myself in really.
He delves into his property investing journey all the way to the beginning, starting with his first property.
We bought, my now wife and I back then bought our first home in 2000. And we’d come back from our trip around the world in late 1998 and then we’d sort of settled back in for a year. I’d say we had a little bit of money each. I think we had about 25,000 each, you know, as a deposit. I was pretty nervous at that point because I think I hadn’t really worked out in my own mind that I wanted to be really involved in real estate. So I was a bit tentative, but my wife was like, ‘no, let’s just buy it, let’s just buy our first house’. And I’m glad she was pretty pushy on that because we ended up buying a place and it was a duplex.
And so that didn’t make me feel really comfortable at the start. I bought my first house, but I’m sharing it with someone else. You know, we’re sharing the driveway and the garage and so on. But, you know, eventually I understood what this meant for us, that we bought our own home and we’d also bought investment at the same time. And I was able to modify that property a lot to make it a little bit more separate so we all had our own privacy and I fixed it up a lot, with the skills that I’d been learning in the building industry. And I think it just really motivated me going through that process of you know, what’s possible. We had that property or ended up having that property for a while. We sold it, because I ended up subdividing it many years down the track. We sold the first one about 10 years later and then we sold the last, the second one, probably only about four years ago. We ended up holding a portion of that property for a long time. I think as I created, value in that property built up equity and we’re paying the loan down. I just thought we know now’s the time to explore the opportunity to start investing on a bigger scale.
Harvey explains why he and his wife decided to buy a duplex for a home.
I think it was a couple of things. It was in our price range in the area that we wanted to live in. And it was a little bit unique. Probably didn’t appeal to everyone. And yeah, again, she just said, ‘well look, let’s just go. It’s not our forever home. Let’s buy it’. And I was like, ‘Oh well I don’t want, you know, someone living right next door or sharing the garage and all those sorts of things’. And I probably just was focusing at the time on the wrong areas because I wasn’t even really thinking much like an investor, let alone a property owner really at that time. Oh yeah, I almost wanted more of the let’s get the nice house and you know, whatever. Whereas she was more, well let’s just get into the market, you know and look how good this is now we can rent next door from $150 a week or whatever it was back then. How much is that going to help us? And you know I’m just so glad that she pushed and we ended up proceeding because, you know, in hindsight it worked out to be just fantastic.
We find out a little bit about his portfolio and the current number of properties he has.
I still hold 32 today. One of them is my own home and one of them is a lifestyle property, and then the rest are investments.
Roughly how much would you say that portfolio is worth? Because it’s a substantial amount of properties there.
Look, when I tell you the figure, it might surprise you. It’s not worth as much as probably what you might see. Because I bought a lot of cheap properties and I’ll talk to you about you know, what I did and why I did it.
Now I like to keep tabs on my figures pretty well. So, I’ve got it currently valued at just over 7 million today, but to help understand why, I bought a lot of my first investment outside of that duplex. I paid 55,000 for it, so I bought a lot of cheap investments and I actually have the ones I’m holding at the moment. So outside of my own property, the most expensive investment property I’ve ever purchased was $336,000.
I’m assuming a majority of the properties that you purchase have a positive cashflow if that’s the case, is that correct to say?
I get really good cash flow out of them. And that’s interesting that you brought that up because it actually was my focus from the start. For a number of reasons. I felt early on into the process that the purpose of me doing this is to generate an income later on in my life.
That’s what actually was going to ask. How do you know roughly how much income you’re generating from this portfolio?
At the moment the income is about $330,000.
As Harvey has purchased over 30 properties in his life, it’s inevitable to experience a lot of ups and downs. We explore what is one of his worst investing moments were.
I have thought about that and I don’t know if I’d say I’d categorize it as anything like a worst experience. I just take everything sort of in my stride. I mean, I’ve certainly lost money on my investments, many hundreds of thousands of dollars for sure over the years by trying things that weren’t that successful. And again, when you reflect on it, I probably didn’t have the expertise. I didn’t build up my knowledge prior to going into that strategy. Nothing has been a disaster. And I’ve always, and I guess this is a really important point, I’ve always made sure my portfolio could handle basically anything that was thrown at me. And a really good point I want to make for the listeners too, is not only in making sure I selected a lot of different properties and different locations to give me some diversity, that to me it was a bit of a risk management strategy.
But I also made sure that I was continuing to grow my income outside of the investments, in my case, my business. So then when things didn’t quite go to plan, I had resources I could always draw on. And I always viewed it as a long game. All the little speed humps I’m going to encounter along the way are just that, none of them that can be detrimental to the overall outcome, but we must be in a position to be able to deal with them. So you know, I did development once and I didn’t really make any money out of that.
Could you talk about that one? That sounds like a very interesting story. How did you find that development and what happened?
I bought a block of land out in country Victoria in a town and at an old place on it. I think I paid about 80 odd thousand at the time. And I eventually got permits to build four units on it. But that took a long period of time and I was pretty clunky through the process and ultimately didn’t do my due diligence enough to understand what the true cost was going to be, what the end value was going to be. And long story short, I was fortunate enough to sell them to the department of housing. The government was at the time looking for more housing and a friend of mine actually, he knew about this. He said, ‘why don’t you put your property up for it?’.
Because I was having a bit of trouble with it. I didn’t know how I was going to finance the build at the time because if you worked out, you know the value was going to be virtually what I was going to owe. So there was not going to be any equity really in the deal. He said, why don’t you tell them to put it up to the department of housing, they might be interested in buying in which they did. So once I had a signed contract for four units, then it was really easy to get the finance from the bank, so we ended up just building them. But look, to be honest, I lost interest in the whole project and I didn’t even keep a real good track of the numbers, but I certainly didn’t make any money. And you know, I probably would’ve been underwater, 50 to 100 grand probably throughout the process.
Harvey tells us what initially interested him to jump into this type of deal.
I thought there was…I guess it highlights mind, naivety, reeling and inexperience at the time. I bought a block of land for 80 something thousand, and then I thought, well, you know, I’ll build four units and I’ll sell them for $250-280,000, and they’d have to be profitable. But you know, I had a bit of a sloping block and throughout the whole planning process we worked out that all the drainage had to go the opposite way to the slope. I said we had to build all these retaining walls and yes, a cost just blew out, so you know a more experienced developer probably would have seen those signs at the start. So, someone who knew what they were doing would have made money, but someone like me who didn’t really know what they were doing didn’t make money. So it was certainly a good lesson to learn. It hasn’t tarnished my view on developing. It’s like anything, you just need to understand what you’re getting yourself into. And yeah, I just didn’t enjoy the process to be honest. You know, money aside, even if I’d told you now, I made $100 000, I’d still say I didn’t enjoy the process. It wasn’t really my thing.
I guess with that one, is that close to where you were? Or was it sort of a regional town kind of thing?
It was a regional town. So I ended up getting a builder from Melbourne who actually set himself up there for six months while he built them. So they were really well-built, but to be honest, I was so disinterested that I never went to see the finished product. I remember going to the site when it was at lock up and that was the last time. I drove past the site, but that was the last time I went to the site. I just had no interest in it at all, I just wanted to get it finished as quickly as possible and just move on.
After looking at some of his not so great moments in his property investment journey, we turn it around and take a look at his aha moments.
I think the whole journey has been that, and even up until recently. So I set out to, you know, to buy properties that I could afford with a very good rental return, for a number of reasons. Like I said, one of the reasons to generate an income stream later, but it was also what I could afford at the time. I’d only started my business and I wasn’t generating huge profits at the time, so I had to focus on what I was able to do. And I deliberately did that rather than worrying about what I couldn’t do. And it was, it was great to be able to buy these properties where the cash flow was very good.
It enabled me. Most of them were reasonably cash flow neutral, so I could just keep buying or trying to add value to them where I could to fast track my equity and I’d get the family to come in and invest with me. You know, provide deposits and things so I could move quicker in the process. That turned out to be very good. I also did a lot of investing in the mining sector around Australia, probably around 2004 through 2007. And that worked out to be very good for me and I still pretty much hold all of those properties today. But I managed that risk by buying cheaper properties. And I got to ride that growth boom, both capital growth and rental growth. And you know, a lot of the properties have pulled back a bit now since their peak, but I took all the equity out of them at the peak. So I’ve been able to in a roundabout way enjoy the fruits of that growth. Rather than, looking at it now and go well what’s come off X per cent off its peak and not be able to grab that equity and go and do other things with it. So I’m glad I made that decision.
Which is great, because it sounds like you bought it on the market value and with its positive cash flow, it pretty much pays itself off, so it doesn’t even matter if the value hasn’t gone up. It’d be great if it does, but in some sense you’ve already tapped into equity.
I’ve already tapped into it. Yeah, you’re right. And it’s something I think about a lot because the value of my portfolio is not what I’m excited about, but what I am excited about is maximizing the income from it. And also I’ve got a lot of debt to pay off because you know, I’m going to be paying off these loans for probably another good 10 to 15 years, I would say. Which seems like a long time because I started 20 years ago, but I’ve also enjoyed myself along the way. And that was a very specific thing that we as a family decided because it wasn’t just like let’s do this and hope we’re still here in 30 years to enjoy it. Let’s get a good blend of planning for tomorrow, but also taking some of the rewards along the way.
So that was a conscious decision and one that we are very pleased we did. So it means my debt is higher now than what it could have been but yeah, it comes back to what I said earlier about just making sure you’re robust and can deal with things and, you know, we manage it very comfortably. We’re just on principle and interest repayments on pretty much everything now. And yeah, just on that path now to, you know, using it as part of our income really.
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PROPERTY INVESTING STRATEGY
Harvey goes into the details of the different strategies he chose to focus on that ultimately helped him to buy 32 properties in his portfolio.
I think one of the things that I guess pushed me more in that direction was what Robert Kiyosaki would say about an asset. It’s something that puts money in your pocket. So if I’m buying something that’s not doing that, then it’s not fitting that particular definition of an asset. Now I think the definition is broader than that, but that point really resonated with me. So I thought, well that just makes sense to me. Why don’t I buy things that pay me? If
I’m claiming tax deductions, I’m losing money. So that didn’t really appeal to me and it would cut me out prematurely on what I could buy. Whereas this strategy…well things have changed a little bit now in the lending landscape. But back then, you know, it enabled me to continue to buy properties and I just became, I guess, more creative, with the sorts of things I did with strategies. I also mentioned at one point I probably had about 12 vendor term contracts in my portfolio, which was a great strategy to just boost my cash flow.
Can you elaborate what vendor terms means for listeners who might not know what that is?
That’s when I’d buy a property and sell it to someone that couldn’t qualify for finance. So in effect, I became the bank so we would, you know, I’ll give you an example. If I bought a property for $300,000, I would then sell it to them at a small margin above my acquisition costs. I might sell it for $350,000 or $400,000 and if I was paying 5% on my interest rate, I’d charge this particular client 7% so I’d make a margin on the rate and then that, you know, full 7% over above my debt. So a lot of those strategies I’d generate $800 to $1000 dollars a month in positive cash flow. So which was looking back, a strategy I’m so pleased I did, because when leading into the GFC, when interest rates were rising it just buffered me, I didn’t feel that that pain of rates going from five to 5% to 9% because I had all this surplus income coming through.
It’s a smart strategy when you think about it, because you’ve factored in that component plus also, you’re making a margin. It’s almost like you’re renting to renting.
And it was a good look. It’s pretty much banned now, Australia wide I think. Or it’s about to be in the last remaining States where you can do it, but it’s just because probably the system was abused a little bit by some investors. But you know, we had some great stories because when you do a vendor terms contract, as I am the original owner of the property, I don’t get the growth in the property over and above my predetermined style price. So, there was one that stands out to me where I help these people get into a property. They were on a part nine, so not quite bankrupt, but just prior to that, and had $10,000 as a deposit. So we took that, we put them in a property in a suburb of Melbourne, which was valued at about $300,000 at the time.
And they actually just refinanced that away from about two years ago now. That property would have been worth $600,000. So it also gives me a lot of comfort knowing that I’ve been able to help that family go from $10,000 to effectively $300,000. But that was there as the head of the transaction and my win was I got surplus cash flow along the way. So if these were put in place correctly and dealt with effectively, then everyone could walk away with a positive outcome.
He further explains his selection process and where he went when it comes to buying properties.
I went all over the place, I did a lot in Victoria. I just tried to select towns that were affordable for me, demonstrated some good yields and I felt I had a future. And yeah, one of the things I do is…if McDonald’s had built a store in that town, then they would have a much bigger research budget than I do. So they obviously think there’s a future. So that was just a simple thing to go, okay, well big organizations have confidence in this location. You know, so should I.
Harvey affirms that it’s important to model the strategies of brands, and look at the location of where their properties are.
I believe there’s going to be growth because you’re buying properties that you can’t even, you know, you probably couldn’t have even bought blocks of land for that value back when I was buying let alone, put a house on it. So I always felt that I was buying below replacement costs. And as long as I felt that the area had a demand for rental and there was, you know, infrastructure and things happening, then it gave me the confidence to proceed. And I just spend a lot of time, you know, I’m probably taking a different approach today. I was more focused on, well, where can I get old and buy anything if it didn’t give more than 8%, whereas today I’d probably look to focus more on the location and just the yield and focus a little bit more on the quality of the property than just the yield. So I don’t consider it a mistake, but looking back, and I talk about this a lot with my clients. If I showed you some of the photos of the houses I’ve got, you’d probably look at me and go ‘why the hell did you buy that for?’. But you know, it delivers the outcome that I need.
Whether it be a positive or different route for Harvey, it is all about the learning process for him.
I have done a lot more transactions than I currently have. So I’ve probably done somewhere between 50 and 60 property purchases and sales. Now my spreadsheet just keeps track of, it’s not a sophisticated spreadsheet, but it just keeps track of my current portfolio and so looking back, I’ve kept data of what I paid and what the rent was at the time and all that sort of stuff. But the purchase price of these properties I currently hold, was 4 million and it’s currently valued at seven. So I’m still very comfortable with the growth. That’s a 76% growth in the portfolio since I’ve had it. And that was buying and this drives it home to me now and also to the people I work with.
But I was able to do that, without buying the best investments because I didn’t know what I know today and my point of focus was probably just slightly off. So if you can get that sort of performance by not buying the best stuff or what can you do if you focus a little bit better and think more about what you want to buy. But more, you know, like I said previously, the value is not that important to me. It’s about the income that’s being derived from those assets which will continue to grow. And the regional areas, because the rents are still relatively low compared to capital cities, there’s a lot of room for growth. And I see that all the time. Every time a tenant moves out, we often get increases in rates. So I think long term it’ll certainly deliver you know, what I set out for it to do.
In hindsight, if you’d took a different direction in today’s market and look at say for example Melbourne and Sydney on average properties that are about $1 million, how does one afford to be able to purchase an investment property like $1 million and get the kind of rental returns if you do that kind of strategy nowadays from your point of view?
It doesn’t exist. The rental yields, you know a good yield might be considered 3%. So if you’re going to buy those types of properties, then you’re relying on the investment performing in another way. Because it’s not gonna perform from a cash-flow point of view. So you’re going to be relying on adding value to it, via renovations or subdivisions or, the property going up in value over time that you can then tap into that either by selling it, or accessing equity. I think you’ve just gotta be very clear on why you’re doing it. I take the view that now I’ll still sell some of my properties for various reasons, but I still want to retain, you know, my goal would be to hold in retirement, probably 20 of them and the cash flow modeling on that once I own them is quite attractive.
But I want to sell as few as I can really. Because when I sell, I have to remit the capital gains tax on it, and then I’ve got to decide where else I’m going to invest that money. So it becomes a little bit inefficient in a sense. Having to buy something and to get any benefit, I would have to sell it rather than trying to buy something that you think you can hold versus forever and live off the rewards of it. So that’s something I think that investors have to think a lot about. I guess we naturally gravitate, when we want to buy, to something that is going to go up in value and yes, that’s important. But ask yourself the question, what are you going to do when it’s gone up in value? If the return back to you is low, then it’s not going to deliver the income that you’re going to need later on in life. So then your option is you’ve got to sell it and then you’re going to lose a significant portion of that value through selling costs and tax. And then you’ve got to decide where you’re gonna invest it anyway. So you’ve got to complete two transactions.
No one wants to do that as well too, because it’s just time consuming and costly.
Yes, so this strategy and again, it’s just one strategy. It’s not the silver bullet in investing, but it’s a strategy that I think has a lot of credibility and probably should have more focus put on it. You know, that idea in a general sense of being able to buy an asset that returns good income that you can get, you can pay off and own and live off the income for the remainder of your life.
Harvey shares with us the kind of mindset he has adopted that influences him to buy particular properties and whether or not it has changed over time.
It’s relatively the same, to be honest. I never set out to be rich, I wouldn’t use that term. I just set out to try and create something that made life a little bit more comfortable at some point in the future. And I still put myself in that category. My investment journey’s still got a long way to run but the real gains are made and particularly when you’re paying off your debt, the real gains are made in the later years as you know. So my why is to create something that you know, all the neighbors and myself and my wife and to some degree, my kids, to benefit from and enjoy. When we need to you know, we don’t rely on any of this income at the moment from the properties.
It all just goes back into servicing the debt and reducing the debt and carrying the costs associated with holding property. I’m 45 and I still want to do work for many years ahead. I enjoy what I do, but I don’t need it. But I know that it’s going to be there later on. Fast forward 10, 15 years when perhaps I don’t want to work as hard or whatever my particular circumstances are that then this can start to take over. So I think the ‘why’ is creating something for later on, is still very relevant today. All these years down the track.
As you mentioned, Robert Kiyosaki’s book was very influential on your mindset in terms of looking at assets and liabilities and looking for cash flow, but were there any other resources? Or did you have any local mentors that you sought help with your property development journey?
I did a weekend course early on and it was interesting. I can’t even remember the people’s name now to be honest. But I chose this weekend course because it wasn’t a course where you know, we’ll sell you all of our developments. It was a course that you purely just paid to be educated on a whole range of strategies in real estate investing, from a couple of very successful investors. And that was a very key moment in what I did and I took a lot out of it and I guess they gave me the confidence and encouragement from what I’ve learned and heard to keep pushing forward.
I certainly remember that moment pretty well. And then I also bought in my family a little bit and it’s interesting because I invested in a number of these houses that my father had an interest in. So it was interesting to see him come on board after many years watching me. The penny must’ve dropped for him that, you know, this is a good thing. So I like to do things with others where it makes sense. I’m lucky, I’ve got a good family on both my side and my wife’s side that have been big supporters of what we’ve done, so they were mentors in a sense by endorsing what we were doing and encouraging us to back ourselves in and putting a lot of trust in us as well.
But I didn’t confide in a lot of other people because of what I said earlier where you’d get a lot of negative feedback from people if you showed enthusiasm to want to do something. And if people didn’t know, didn’t understand then it was easy to just shoot it down rather than encourage it. So I found a lot of confidence and self worth to proceed within, and my close family later on in the journey.
The award-winning property investor shares his recommendations that can impact your journey, and ultimately achieve great success.
Because I just get so absorbed in my life daily, with what I do work wise, I’m not as proactive in looking and educating myself as I probably should or were previously. But what I do say is, it’s really important to listen to lots of different information. I’m a big fan of getting all sorts of people’s different points of view, you know, what have they done, what’s worked, what hasn’t worked, what does this strategy look like? There’s so many different things and we can get that online, there are various people that talk about things that they do or, you know, property investment magazines. I always found it interesting when I was reading them at times in the past where they would interview other investors and talk about what they’d been able to do.
I found what’s really important is just listening to people and then taking that information and forming your own view on what you think is going to work for you, because there’s no one way, there’s no right way and wrong way. There’s lots of different ways to make this work. So figure that out by talking to people and keep coming back. The words I use a lot are manageable and sustainable. Don’t try and take on something that isn’t going to fit into that category because you could just cause yourself some problems down the track.
Would you say that would be one of the best advice that you have received?
I think those words are what I kind of live by. And I talk a lot with my clients. And also a bit of balance, you know, it’s not all about tomorrow. It’s okay to reward yourself a little bit along the way. Investing’s a long game, and you don’t want things to come up in life and whatever you’re doing has put you under stress or because you’re investing, you contact the family on a holiday. I think you’ve got to strike a balance there in some way so you can continue to enjoy it the whole way through, so that you can see it through because the real gains are once you’ve seen the process completed.
In my case, it’ll be once I’ve extinguished most or all of my debt and I can now enjoy the fruits of that work. But I just can’t imagine that being a chore for 30 years, it would be horrible. So you’ve got to get that balance right. And that’s different for each of us. And particularly in the strategy that I’ve used, if I had considered it more at the time, I would’ve started paying the debt off straight away, when I look back at it, I’d be well advanced on where I am. I had a lot of interest only lending from for a very long time in the portfolio. And I still have a couple of interests, I think interest has its place and it’s very relevant for investors. But if you’ve got good cash flow it makes sense to start out to build the equity quicker. It derisks the investment. Even if you’re not getting growth, you’re building equity. If I reflect back on it, it would have been a strategy I would have employed from day one.
Harvey affirms how important it is to work hard along the journey, whilst at the same time managing a balanced lifestyle.
I had this conversation today with a client who has just bought their first investment property, and we had that discussion about the cash flow model, the interest only versus principal and interest. And I said, ‘look, there’s no right or wrong here. I just want you to be really informed about what your options are and you’ve got to also think about where you’re at right now in your life’. And they said, ‘well, you know, I’m really glad you’ve pointed all this out to us and we know we’ve got some school fees for the next five odd years with our children. So we can now make an informed decision so that we get a balance that’s right for us, that, you know, we’re comfortable going interest only, it’s important to us’. And I think that’s really great that an informed decision has been made, understanding the various options available. I’m a big advocate for that. But often the conversation isn’t had so I think the main point is to understand what your options are so then you can decide what’s most appropriate and at what time.
Going back 10 years, Harvey shares what he would have said to his past self.
One of the big points I’d say is filter out all the negative noise and influence around you, that can bring people down at times. So back yourself in, be strong, make sure you are not, exposing yourself in a way that’s going to be detrimental to you. And have fun, I use that term a lot. This process has got to be fun. Because if it’s not you, you’ll stop it. It’ll just burden you in some way and you will unravel it. So I think, for the most part, I probably did all those things. But encouragement is an important part. And I get a lot of that feedback from the people that I work with and that helps us have the confidence to back ourselves in.
There’s a lot of doubt that comes in and out of our minds, but after we speak to you and you break it down we know what this means, it gives us confidence. So I think that’s a big thing I would’ve said to myself, make sure you learn about what you’re doing and if you decided it’s the way to go, then back yourself in and surround yourself with positive people, that’s important. The drainers can put a damper on things, that’s for sure.
Looking forward to the future, Harvey shares with us what he is most excited about in the next few years.
I am excited about seeing my debt continue to fall. That’s quite exciting now. I’ll also look forward to, when I want to slow down a little bit as a mortgage broker, I’d like to go and fix up a lot of these houses that I’ve bought.
So I look forward to doing that as well. And that again will just tie in nicely to my objective of generating good income from them, so once I give them the face lift, that’s certainly just going to improve that asset for me, and I look forward to doing that. Because like I said at the start, I love being outdoors and doing things. Being office bound most of the time is very different. And I wouldn’t be able to be a mortgage broker for the next 15 years. I reckon in another five years or so,the business model might change a little bit and I like being out and about. So if I can incorporate my portfolio into my lifestyle and go and fix a few of them up a little bit, that’s what I’m really looking forward to.
How much of your success is due to your skill, intelligence and hard work? And how much of it do you think is because of luck?
The line I use is, which I’m sure you’ve heard a lot is, I think you make your own luck. Really, you put yourself in a position to benefit from a potentially positive outcome. So I’ve never used the word luck when I talk. As a general rule, I always like to try and make an informed decision and take responsibility for that decision. And I’ve had some success, but I’ve also had some things that haven’t gone my way. I’m certainly carrying a few properties at the moment where it would be a little bit easier if I didn’t have them, but I don’t consider that bad luck.
I consider that, well, I made a choice at the time to do that. And I made a commitment to myself to be in a position to ride it out and that’s what I do. So I equally see the same on that side. You know, if something’s going well, will I attribute it more to having a go. None of us have the crystal ball, I think we need to do our research and have some kind of a plan and work on that plan. And as a result, I think you just become lucky over time. So that’s probably the best way I can answer that question.