The year was 2010 and our net worth was $750,000 (this was after the sale of our house, and includes superannuation and shares).
We sold our home that was spacious and a great family home with a big backyard AND we were STRESSED (well I was) with the financial burden of 'house debt'.
Meaning of Mortgage "The term comes from Old French, and Latin before that, to literally mean 'death pledge'." LOL
In hindsight, we didn't have a HUGE debt compared to these days ($450,000 home loan). But with a young family, working part-time, minimal understanding of finances and no other income stream I found it very distressing that we couldn't get ahead. I was brought up to believe wealth only came from buying 2-4 properties and I couldn't see how we could do that.
We were 40 years old
And a beautiful home (profit after the sale of our home $550k)
We sold our beautiful home and bought a property a suburb away that had not increased in value as yet. I sold the idea to hubby that to be mortgage-free we would need to do something DIFFERENT to what the norm was in Sydney. With $550,000 we still would not have been debt-free AND we would have had to move out of our area, move schools etc. So we rented so that we were not pressured to purchase immediately. I had a CHECKLIST to keep us focused and did the maths that showed, on paper, we could do this project. We found a property, hired a mortgage broker, purchased for $680,000 and hired a builder to build the duplex for $600,000. I loved the process and the goal of ending this project with 2 properties. It was a stressful 12 months with a very BIG mortgage, including paying rent, and a margin loan, on our blue-chip shares, to tie us over until we finished the duplex and started earning rental from one of the homes.
Now, I have always wanted to be a multiple-property owner and if I am really honest most probably because that’s what I knew the most about and was only ever told from older family and friends that in order to accumulate wealth you must have properties! People are happy to discuss the properties they purchase, the rent they may get and the capital growth so you feel safer as people around you are doing the same thing and getting great results.
Sacrificed our dream home that had lots of space and was renovated how we wanted.
Dual home (duplex) where we live in one and the other one is tenanted OR sold. Same land size but living space is a little smaller and definitely a smaller backyard.
We DID get great results, BUT not at the beginning. In 2013, our duplexes were valued at $850k each and had cost us $700k each (land and building). Family and friends (and even our kids) looked at us like we were crazy to leave our great suburb and home to build this in an 'average' neighbourhood. I didn't care as I felt 100% assured that this sacrifice would be worth it down the track. We held our properties, got a real estate agent to rent next door and kept a fairly tight budget for the next few years. The decision to make this happen was mainly my doing as my dream was to own more than one property. I did feel a little sad leaving our beautiful big home as while the duplex is spacious, new and built well, the backyard is half the size of our original home and the bedrooms are not as big. Plus its pretty open plan so sometimes we can be on top of each other. BUT I still stand firm that THIS was our main change that has MADE the difference to our Networth.
You can never know what happens in the future with other areas of your life and external influences. We both increased our incomes and the property market in our area increased steadily over the next few years so that in 2018 the value of each duplex was valued at $1,350,000 each (growth of $650k each from time of build in 2010).
Most of my influences back in the early 2000s was going to open houses, talking to people around me and then going to events where Real Estate gurus would talk about money and property. I did have one financial planner try and steer me to shares but the way he explained it and charted our growth did not resonate with me. If only this brilliant FIRE community was around then AND I found it earlier!
In 2015 we started to travel again and spend a bit more of our expendable income on $20,000 overseas trips, and we have done so most years. Our kids were growing fast and we really wanted to have some family memories with them and also share with our extended overseas families. It did take approx. $100k out of our possible investing however I still feel memories are so valuable AND we have 'some' time to bulk up before we retire.
In 2015 I also wanted to try out purchasing property in our Super Fund using the SMSF (self-managed super fund) option we have available in Australia. The strategy was to purchase one property for approx. $450-$550k which would have to be in Brisbane as Sydney and Melbourne were over that average. No EMOTION just a 7 point list of what the property needed:
No more than 10km from a city centre
Greater than 650 sqm block
Prefer a corner block
Fairly updated kitchen and clean throughout
Close to transport and shopping centre
I really enjoyed the process and had our super funds transferred to our SMSF, which at the time was $280k combined. We acquired an SMSF home loan and our SMSF journey started.
Fast forward to 2020 and we have had good tenants, however, we have had some expenses each year that has eaten into the rental profits. We were trying to pay down some of the SMSF loan (Original loan was $300k – repayments $1,800/pm) and the rent is $505/pw so was close in paying the mortgage repayments. Overall the growth and strategy have not given us exponential growth. I came to realise over the last 6 months with the boost in my knowledge of personal finance and that perhaps we are too heavily skewed to property and very light on shares/funds.
So, what's next for us is some major directional changes to our strategy, with the guidance of a Financial Planner. My advice for 50+ is that we don’t have time to play around and don't have a lot of COMPOUNDING MAGIC left. We need to get the foundation solid with minimal changes in this last stretch. We both love property and would love to flip houses, however, we know deep in our hearts that we don't have the passion and drive to do this. I would like to see the hard work & sacrifices that we have already made work REALLY hard for us now with added SMARTS to get us to the finish line.
"The secret of change is to focus all of your energy, not on flighting the old, but on building the new" - Socrates
Side notes I have pondered. If I knew way back then what I know now:
Don't buy a house bigger than your income. Try and keep emotion out of it. Have a list of the main things you want ( how many bedrooms, size of land, type of building, how close to city or transport, quiet street, price range) and stick to it.
Don’t sell a property if rental will be positively geared OR wait at least 10 years. Positively geared is GOOD DEBT and can feed itself for the long term. Sold my first apartment when I was 27 when it was doing its own thing and could have continued to support itself. I was afraid of the debt and sold it to buy a car! Geez Louise... dumb!
Salary Sacrifice 10.5% in your 20s before life expenses swamp you (this is on top of the employer 9.5% contribution so that 20% is being invested for FUTURE YOU). This will set you up for your 40s-60s. .We didn't do this but will work on my kids and any 20-30 something year old that will listen!
DO your own RESEARCH and READ and INTERACT with like-minded people. Podcasts, Instagram accounts, blog pages and YouTube channels. There is a wealth of information ready for you and so many people would love to boost your confidence and be your accountability buddy!
AND invest in yourself to get sound/smart advice from a professional. Not any professional, one you have taken the time to know and discuss your needs and how they can help. Trust is key and having an advisor in your corner will help YOUR money MAKE more money!
In the coming weeks, future posts will be about Realigning goals, a book review and an update on our FP journey.