How we’re building a property portfolio we can retire on


Busy professionals Deb and Peter Gray instinctively knew property investment would help them retire richer and sooner. While their journey had some bumps along the way, they’re well and truly on their way to securing their financial future and living the life they designed for themselves. Miriam Bell tells their story

Contemporary life is excessively busy for many. It rushes by at breakneck pace, barely leaving time for breath. In its wake comes the peculiarly post-modern problem of effective time management. Those struggling with the dilemma of how to fit all they need and want to do into their lives too often end up doing, and achieving, much less than they wanted. Getting involved in property investment can easily get left way behind on a ‘would like to’ list.

Regional NSW-based Deb and Peter Gray were well aware of the dangers of this particular conundrum. A primary school principal and airline pilot respectively, they have busy professional lives. This meant that when they first started pondering property investment their biggest concern was that management of their investments would suck up whatever spare time they did have. This concern saw them sit tight on their existing share portfolio for quite some time while they weighed the pros and cons of diversifying their holdings.

“We wanted to make our money work better for us, but we are both very busy people,” Deb says. “So we needed an investment property to be one we could manage with minimal input time and effort. We really value our non-working time, so we didn’t want to lose any of it!” Eventually, Deb came across a hands-off solution to their time-based problem. Now, the couple have a four-property portfolio worth $2.8m and are in the midst of planning their next purchase.

Hands-off approach
The fact that the couple did not want to invest in a property they would have to interact with personally dictated the way they embarked on their journey. Deb says they felt that, if the property had been close enough for them to drive past, they couldn’t have helped but see maintenance and repair work that needed to be done. This would have led to them doing such work on an ongoing basis, rather than spending time with their three adult children or pursuing interests like their horses.

As a result, their comprehensive research was focused on other states. They looked at areas that indicated good capital growth and good rental returns, and had low vacancy rates and demographics that suited their requirements. Eventually, they decided Queensland was the best option for them.

Deb says they still weren’t quite sure how to proceed, until they saw an ad for Defence Housing Australia’s (DHA) property investment program in 2005. “After identifying a number of their Queensland properties that we liked the look of, we did virtual tours of them. We ended up buying two DHA properties at the same time, without ever physically going to see them.”

While the couple had quite an extensive share portfolio – thanks to some blocks of land they had owned and then sold for a substantial profit back in the late 1980s to early 1990s – they were reluctant to use it to pay for further property investments.

Instead they used the family home as collateral and negotiated an arrangement with their bank to gain finance. With the resulting loan, they bought a four-bedroom house in Townsville and another in Toowoomba. The Townsville house cost $329,000 and is now worth $450,000, while the Toowoomba house cost $319,000 and is now worth $430,000. 

The success of these investments led Deb and Peter to draw down equity in their portfolio and start investigating another purchase.

In 2008, they bought a two-bedroom, non-DHA apartment in the Melbourne CBD. It cost $540,000 and is now worth $660,000. While it has a 5.78% rental yield, it has caused them a few problems over the years.

In 2010, they also sold their old family home and bought a new seven-bedroom home on 14 acres of land in Razorback, NSW. Originally bought for $960,000, their PPOR is now worth $1.32m.

Goal setting is key
Diligent research had always been a crucial element in the couple’s investment strategy. But Deb says they also initially used a financial advisor to assist them in setting up their wider portfolio so that it was suited to their specific needs.

For example, they always make use of negative gearing. This is because the tax deductions it leads to work best for them, especially for Peter who has to pay particularly high tax. They are then able to commit the money withheld to financing their loans.

In a broader sense, they found that employing the advisor helped them to improve on their research and tailor it to identifying exactly which properties were best for their long-term goals. “We look to see if properties are the right sort of price, what the area’s statistics and demographics are like, what the growth projections are, and what the rental yields are like... We really try to understand the market and the dynamics of where and what we are looking at.”

Keen to expand their portfolio further, the couple are currently researching their next investment. In keeping with their research strategy, they won’t be buying in Sydney because it is too close in physical proximity, plus they think the prices are already too high but the yields are not particularly good.

“We are currently looking at Adelaide. Growth reflection is quite good, productivity is improving as far as the city is concerned, and it is now offering more opportunities for people to be employed there.” Deb adds that they prefer to buy new builds in order to maximise the benefits of depreciation. “We always set up a depreciation schedule right away, on purchase. But we work out what sort of depreciation we are going to get pre-purchase, so that we know what we are working with.”

Purchasing new builds cuts down on potential repair and maintenance worries. It also means they are never in a situation where they might start to entertain notions of renovation.

Dealing with challenges
The couple’s Melbourne property, which is not a DHA property, has proved far more problematic, time consuming and costly. Further, this has been the case from the moment they expressed interest in it.

Their history with the property goes back to 2006 when they bought it off the plan. But, thanks to the GFC, the original construction company went under. While their deposit was externally invested, and thus not in danger, they had to wait until the receivers found another investor to take over the project.

This meant the development, and their purchase, wasn’t completed until 2008, Deb explains. “The price remained the same and we didn’t have to pay any fees (like stamp duty) because of the situation… But it was extremely frustrating and we missed out on earning returns over that period of time.” Situated in the heart of Melbourne’s CBD, the apartment overlooks water so always been attractive to tenants. But the Melbourne CBD medium-density market is oversaturated and the area is reliant on CBD workers for tenants.

These factors, particularly at the height of the GFC, have meant the apartment has had a number of vacant periods and Deb and Peter have had to cover the shortfall in payments and pay to find new tenants, as well as contributing substantial body corp payments.

“Although it has had some decent capital growth, when you take all these other things into account, the apartment has just not been as cost-effective as our other properties,” Deb says.

Plan for unexpected change
Dealing with the issues arising from their Melbourne property has taught the couple some important lessons. The most crucial of these is the need to ensure repayments on a property can be continued for a considerable period of time in the case of unforeseen circumstances, like a sudden or extended vacancy, or an emergency, like the loss of a job or illness. Addressing this when you buy a property is essential, Deb says. “If you can’t facilitate the loan payments whenever you have to in times of need, then you shouldn’t buy the property.”

For this reason, the couple also advocate keeping up to date with the full range of insurance coverage necessary. They recognise that risk is an inevitable part of the property investment journey, but say insurance will always mean you are in a better position if anything does go wrong. Anyone going into property investment for future financial security should think about how their journey might pan out, Deb continues.

“They need to think about how they can maintain their lifestyle and facilitate the payments on their properties without being compromised financially. They also need to think seriously about what they would do if they lost their income.” 

Looking to the future
Considerations of their financial future originally led to Deb and Peter embarking on their own foray into property investment. At the time, the two were financially stable and living the life they wanted to live. But they felt they weren’t doing enough for the future and their retirement, Deb says. “We realised that spending money on travel and material things was enjoyable now, but what about further down the track? That realisation prompted a change in direction for us.”

They decided their goal was to be able to retire in their early sixties and continue to live the sort of life they enjoy, without having to sell off their assets to survive. And, despite their share portfolio and investment in an abalone business, it is their property investments that they believe will let them achieve this goal. “Property investment suits our unique goals. For this reason, we are aiming to purchase further properties in the near future. We have done our sums and we can have a stress-free retirement if we continue to invest wisely now. That is what we have always been aiming for.”

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