Life has thrown some tough challenges in the path of Patricia Cheah. Yet she has never shied away from picking herself back up and has since built a portfolio worth $1.7m at the age of 27. She tells John Hilton how she did it.
The first open house Patricia Cheah can remember attending was one in the outer Perth
suburb of Thornlie
. She was just four years old at the time and it ended up becoming her childhood home.
Little did she know that 15 years later she would become a property investor herself and learn some hard lessons along the way.
Patricia has lived in Perth since she was a one year old, after her parents emigrated from Malaysia with two children under the age of three and little more than the clothes on their backs.
They did not speak a word of English and were yet to learn anything about Australian culture. But they were determined to grab the opportunity by working hard.
Throughout Patricia’s childhood she remembers attending open homes with her mother, who was always looking at properties. She was so inspired by her parents’ achievements that she decided to follow their lead.
“For them to build their own portfolio when they were on an extremely modest income ignited my ambitious nature for investing,” says Patricia.
“Having seen their journey from humble beginnings to now-successful investors made me realise the financial freedom that investing offers. I knew very early on that I wanted to use property investment as a way to financial freedom and security.”
It didn’t take Patricia long to develop a burning ambition: to buy a property by her 18th birthday.
Unfortunately, when the time came Patricia hadn’t saved enough for a deposit. She had to wait another year to be able to buy a $272,500 block of land in Yangebup (a southern suburb of Perth) with the help of her parents.
Patricia bought this property with her heart rather than her head, after envisioning building a magnificent house in the future for her family to live in.
In order to finance it she made a deal with her parents that they would help her pay half of the mortgage repayments.
With a mortgage under her belt, Patricia had to work harder than she ever had. In addition to studying for a Bachelor of Education full-time and juggling two casual jobs in hospitality and retail, she was tutoring.
“I was doing late nights and weekends, so I didn't have much of a social life when I was younger,” says Patricia.
LEARNING THE HARD WAY: LESSON 1
Patricia soon realised that being the owner of a block of land had some serious downsides. As she could not afford to build on the land, her investment lacked the tax benefits and rental income that would have been a big help in repaying the debt.
“It seemed more affordable than buying a house, but when you look at the bigger picture, it cost us more to hold than if we had bought an income-producing asset,” she says.
A few years later, she sold the block for $310,000. Even though it wasn’t a total disaster, Patricia learnt a valuable lesson: don’t buy a block of land with no intention to build on it.
“My parents were generous enough to pay me 50% of the equity from paying for the mortgage ($10,000), which I used to fund my next investment,” says Patricia.
Looking back on this purchase, she says she regrets not doing enough research, as the Yangebup area did not perform as well as she had hoped.
BUYING OFF THE PLAN: LESSON 2
Patricia describes her next purchase as “one of the worst investment decisions I have made in my life”.
At the time, she was working at a property company that specialised in offthe- plan and house building.
One of her colleagues suggested she should buy off the plan – “it won’t be finished for two or three years and you’ll make a nice profit by then”, Patricia recalls her colleague telling her.
So, together with her partner at the time, she bought an off-the-plan apartment in the inner Perth suburb of Northbridge.
They held it for five years, but the high strata fees made it difficult to hold, so they sold it in 2012 for a $50,000 loss after factoring in stamp duty.
“I listened to people who had never invested before – even though they worked in the industry. That was one of the most expensive lessons I have learned,” says Patricia.
“For a person like me who is not on an extremely high income, it’s definitely not the strategy I would use,” she says.
Despite making mistakes with her first two purchases early in her investing life, Patricia feels the lessons learned have helped her become a much wiser investor. “When I look back, I’m glad I made those mistakes early, because I couldn’t afford to make those mistakes today,” she says.
“Although those setbacks were disheartening at the time, I never once thought that I would stop. It has always been a motivation of mine just to keep going no matter what.”
A NEW APPROACH
One big lesson Patricia learnt after her first two purchases was the importance of research.
Since then, Patricia ensures that she spends a minimum of eight to 10 hours on research, checking things like future infrastructure and how much the government is investing in the area.
She used this approach with her former partner when they decided to buy a $338,000 three-bedroom duplex in Carlisle in 2008 and a $305,000 two-bedroom duplex in Dianella in 2011.
Both suburbs benefited from being 10km from the Perth CBD and having easy access to great shops, schools and transport.
“I have never invested anywhere other than Perth, and I believe that you should not invest in what you don’t know and what you’re not sure of,” Patricia says.
Unfortunately, Patricia’s relationship did not work out so she ended up buying her partner’s share of the two properties they held together, making her the sole owner of those investments.
“I bought him out last year, so that was quite a difficult hurdle to get over,” she says.
She has since bought two houses: one in Hamilton Hill in 2012 with her mother and then another on her own again in 2014 in Forrestfield, which is 15km southeast of the Perth CBD.
She is most proud of the one in Hamilton Hill.
Patricia had always wanted to buy a house, and her earlier purchases were duplex halves, so she was determined to get a detached dwelling as her next investment.
She also loves the Fremantle
area, but unfortunately that suburb was a bit outside of her budget.
“So I did the next best thing I could, which was to buy one suburb away from Fremantle,” Patricia says.
“Hamilton Hill is only one suburb away from the coast and is in a price range that is affordable for first-time investors.”
Patricia believes that because the property is on a corner development block and is an old house people didn’t appreciate its land value.
“I bought it in a very weak market, and the owners were motivated to sell, so I picked it up for a pretty good price,” she says.
Patricia bought this house with her mother, who agreed on a 74:26 split, of which Patricia owns 74%. Her mother stumped up the deposit and Patricia paid all the expenses generated by the property purchase, including mortgage repayments, repairs, reports, loan and bank fees, and settlement costs.
“I decided to go in with my mum because she was keen to get into another investment property and so was I – it was perfect timing for both of us,” she says.
“The loan structure was all completed by my broker, who understands my longterm goals and has set up my loans to fit in with the strategy.”
Since 2012, this property has grown by a healthy $80,000, to $470,000. Patricia believes it will be more effective at generating capital growth in the long term than rental yield, as it has a very dated dwelling on the lot.
“It’s a development site currently zoned for two dwellings, with a potential of four to five on an elevated block with ocean glimpses, so future growth looks healthy and generous,” she says.
“It definitely has renovation potential, but I would rather subdivide it. If I had the borrowing capacity I would love to be able to develop, but at the moment it’s a bit hard.”
SETTING MORE GOALS
Outside of investing, Patricia is also passionate about yoga and travelling. She hopes to do more travelling later in life, with a little help from her investments.
“I would love to be able to get the portfolio servicing itself; then I could work part-time and travel part-time,” says Patricia.
Now aged 27, she hopes to increase her portfolio to $2m-plus by the end of 2015.
As for the four properties Patricia currently owns, she plans to hold these for the long term. But she makes a point of re-evaluating her portfolio every year, and is always open to selling any underperforming properties.
“I think that’s really important for any investor, to reassess your portfolio yearly,” she says.
Her ultimate goal is to be the owner of 10 properties by the time she is 40, and even if she achieves that she will continue to be inspired by her parents.
“I truly believe that there is nothing I can do in my lifetime that could measure up to the success my parents have had,” Patricia says.
“I always remind myself that if they can do it on their minimal salaries while supporting a family of five, then there is no reason why I can’t.”
PATRICIA’S TIPS FOR YOUNG INVESTORS
- Buying a vacant block of land without the intention to build is not a wise investment, as it lacks tax benefits and rental income.
- Buying off the plan is not an ideal option for a young investor who is not earning a high income and cannot benefit from the tax deductors. Some off-the-plan properties can also have high strata fees.
- Be careful who you listen to. Just because somebody is in the property industry doesn’t mean they know what’s best for you.
- Saving the deposit is the hardest thing to do. Stick with it, as the rest will be easy once you’ve saved enough.
- Don't fall in love with a property. Always think with your head and not your heart.
- Never give up-no matter what.
- The sooner you start, the better you’ll be positioned for retirement.
- Don’t be afraid of debt. It’s better to carry a loan on an appreciating as set than a depreciating liability.
- Keep good company and build a knowledgeable team
- There will always be setbacks, but don’t lose heart. Remind yourself of why you started, and always have the end game in mind.
- Above all, have some fun!
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