16 Jul Why I waited 20 years to buy a family home – Patrick Bright
Probably one of the first ‘rentvestors’ – Patrick Bright – tells the story of how he waited 20 years to buy his family home but that was after accumulating 12 investment properties.
Kevin: I don’t know if you saw it, but there was a comment recently, Channel 7’s Sunrise with Kochie, where he and Natalie (I think Natalie might be his co-host) were having a debate about rent rentvesting. I think she asked him whether or not he knew of anyone who’d done it. That’s my memory of that.
It reminds me of several conversations I’ve had with Patrick Bright, in terms of rentvesting. Patrick joins me. Patrick, of course, from EPS Property Search.
Good day, Patrick. How are you doing?
Patrick: Hi, Kevin.
Kevin: We’ve talked about this before, but I believe you were one of the first rentvestors. Is that a fair comment?
Patrick: I don’t know, mate. I didn’t really know anybody else doing it at the time. I figured this out back in 1998, so almost 20 years ago. I was a sales agent at the time, a young one, and I was pretty green in the industry. I was just looking at financials and looking at numbers and things like that.
We were told that the average person would sell their home and move every seven and a half years back then. Those were the stats at the time. And that’s why you should prospect and speak to everyone, find out when they last purchased their home, so you knew what average timeframe they might be likely to move.
Then that’s how you get listings, obviously: talking to people, keeping a database, and knowing when they’re likely to move.
Kevin: When did you work out that it was going to be better to rent and buy an investment property? Was it at that time? That’s what drove that?
Patrick: Yes, around that time. What I did was I looked at the massive amount of money, the buying and selling costs of buying a new home. I worked out that most people’s home really did only suit them for that seven-to-ten-year mark. I looked at the cost of rent, and. I looked at the cost of paying off a mortgage. I looked at the borrowing ability. I’m a young bloke, 20-odd, trying to learn “How am I going to grow my portfolio? How am I going to get into real estate?”
I just worked it out that it was much cheaper to rent – in fact, probably about 50% the cost renting – versus buying and selling and just paying off your own place. You don’t have to come up with a big pile of money for a deposit and all those costs. Now, it doesn’t work if you fall behind eight-ball. The concerning thing is the people who just rent and never invest. Then they fall behind the eight-ball.
But I made the conscious decision then that I would skip doing all these buy-and-sells until I had a family, I knew how big my family was going to be, I knew where I was going to school my kids, I knew where I wanted to live for the next 25+ years, and I was going to rent until then.
Kevin: That was back in… what did you say: 1997, or was it ’98?
Kevin: Okay. Quick arithmetic there, we’re looking at about roughly 20 years. That’s when you started investing. Tell me about the journey from there. At what point did you buy your principle place of residence?
Patrick: Well, I’ve actually only just bought my principle place of residence at the beginning of this year, in February, because it now suited me. My wife and I have decided where we want to school the kids. We’re just about to have our fourth child, who’s due in a few weeks.
Kevin: Well done. Congratulations.
Patrick: Thank you. We thought “Well, that’s enough for us, four.” We know where we’re going to school the kids. They can go all the way to year 12 at the school. We found a place that would be big enough to house the family and one that was very close to the school, that met all our other needs of size of block, view, and all the rest of it that we wanted. We started looking for that by last year, once we found out we were having number four, and we bought.
Kevin: Over those 20-odd years, how many properties have you actually purchased as investment properties, and how many of those do you still own?
Patrick: I bought over a dozen, and I still hold most of the properties that I’ve bought. I basically just bought when I could afford to. I would buy another one each time and just add to my portfolio.
I have sold properties over the years because I’ve bought, renovated, sold. I had intentions of doing that. I’ve also sold properties to fund business ventures that I’ve done at different times and expanded my business, and things like that. But generally, I try to just buy and hold and not sell. That set us up pretty well, because I could leverage off those investment properties to buy other investment properties along the way.
One of the things I learned talking to finance brokers was that most people barely made a dent in their mortgage. They might buy a home, in seven or tens years’ time, they’re selling that home, and a lot of the time, the equity they had allowed them to roll into a bigger property, but they never really made much of a dent on that mortgage.
That was when I came up with my 20/25/20 rule, which is 20% deposit, no more than 25% of your income in repayments, and you must be able to pay it off in 20 years. That rule has stood me well, and many of my clients over the years, because you can get on top of the mortgage and you can get into a good position to be able to buy another investment property sooner.
Whereas if you’re doing what the banks will lend you – which is usually a lot more money than you probably should be borrowing, giving you 30-year mortgages, they’ll allow you to pay off 30% or 40% of your income – then you’re stretched, and it’s very hard to get on top of it and get into the next property.
That is just another rule that I have when I’m investing.
Kevin: Well, given that’s the rule, I guess we’re 20 years down the track now, some of your portfolio, you’ve got to be coming at the other end, if it isn’t already, with nil mortgage.
Patrick: Yes, effectively. What I’ve done with those properties is tax-effectively… Obviously, I’ve done everything correctly, within the rules. If you’re using an offset account, you pay down the mortgage by using an offset account, and then you can redraw on that offset account to invest further into another property. That’s what I’ve done to expand my portfolio.
Overall, I’m not very [6:24 inaudible] because I wanted to be comfortable. But most of my properties are capital city based, because I’m chasing growth, as well as returns. I’m not just chasing a rental yield wherever. I want to be more certain about my growth, and I’ve been very good at – obviously, it’s my job; I should be good at it – picking where to go and where to invest. That’s come out quite well for us, and that’s put us in a very good position to do what we do.
Kevin: Okay. Just to close this off then, Patrick, given all that experience you’ve had with rentvesting, what would be your advice to someone to get started? What would be your top three suggestions?
Patrick: Definitely do the numbers on investing. If you don’t believe me, do it yourself. I can prove it, because I’ve done it many times. I’ve done it, and I’ve got dozens and dozens of clients who have done this over the years. It is the road less traveled. Most people will not do this; they will just buy a place to live in. So, do your numbers.
Have the plan. I had a conscious plan. When I met my wife, just over a decade ago, I told her of my plan and what I wanted to do, and made sure she was on board with it. It wouldn’t have worked if my wife said to me “I can’t rent. It’s not for me.”
The thing is you move around a lot, especially these days. People move a lot more jobs and careers. I think people are moving more often than they used to. So, I would be making sure you have your partner on board with it. That would be critical.
Make sure you invest where it’s smart to invest. That may be where you eventually want to buy, and I think that’s a good thing to do. One of the reasons I personally have invested the majority of my investment properties in Sydney is because I knew I was going to live there long term.
Why I did that was because if the market is doing well in that market and I need to leverage off that property in the future or – which was always a possibility – sell a couple investment properties to fund the purchase of my primary place of residence when the time came, I wouldn’t be priced out of that market.
Sometimes people will buy in another area – a regional capital city – and that market has done poorly while the market they want to live in has done really well, and they are actually being priced out. That’s a risk factor that I wanted to lower by buying the majority of my investment property where I was always going to have my primary place of residence.
Kevin: Very sound advice. Hey, Patrick, it’s great talking to you. Thank you very much for sharing that bit of wisdom with us. Patrick Bright there from EPS Property Search.
Thanks for your time, mate.
Patrick: Pleasure, as always, Kevin.