Justin Wood didn’t initially set out to build a property empire. He started out chasing the classic Aussie dream of owning a house and a patch of land to call his own. Throw in a veggie patch and a few chooks and he’d be all set.

But things aren’t all that easy for aspiring Gen Y homeowners, as 28-year-old instructional and graphic designer Justin soon realised when he decided to fly the coop and buy a home in Brisbane.

“I was living at home and wanted to move out, but I didn’t want to rent. At first I thought it would be great to get a house straight away, but I realised pretty quickly that my budget wasn’t going to stretch that far,” he explains.

“It’s quite expensive to buy property now, especially if you’re on a lower income. I was on about $50-55,000 when I started saving and trying to get my first property.”

So, like many first home buyers, Justin thought about extending his search to the outer suburbs where he could get a lot more for his money. But a few wise words from his parents saw him make the decision to take a step by step approach and look for a smaller property in a popular inner-city area.

“My parents are very experienced property developers – that’s basically how I got into property investment in the first place,” says Justin. “They were a good influence and told me to find a property that I could afford in a good area close to the city where the demand is.”

“My father started as a pineapple farmer in Yeppoon and then branched out into commercial and residential property. He started his own property development business and for as long as I can remember had been his own boss and worked when he wanted too.”

Starting small

So rather than trying to pick up a two- or three-bedroom house in the outer suburbs, Justin started small and decided to investigate potential high growth areas in which to buy a unit.

“From my research I knew employment and population growth would be a key driver of demand. This narrowed my search down to areas within 10km of the CBD,” he explains. “Like my dad always said, ‘you can always change a property but you can never change its location!’”

Taking his dad’s words to heart Justin set his sights on an affordable, but unrenovated, 1960s style two-bedroom unit, just 4km from the CBD in Windsor. It was in a well-kept six-unit block, and the location could hardly have been better.

“That was fantastic, because I worked in the city and travel wasn’t going to be a problem – just a train ride away,” he says. “There were also buses, shops and restaurants just down the road, so it really suited my lifestyle at the time, being a young professional.”

The only problem however was that the property happened to be already inhabited by young professional tenants, who still had a year left to run on their lease. So it was at this point that Justin became something of an accidental landlord.

“I bought an investment first of all basically because I was forced to,” he explains. “There were tenants there who had a lease up to a year, so my original idea to buy my first property and move into it couldn’t happen.”

But Justin was happy with his property selection, and had put in an offer of which was accepted without question. Luckily for him the vendors were keen to sell and the unit had already been under offer twice, with the potential buyers on both occasions dropping out due to funding issues.

“I was lucky to get the property in the first place, because it really was a seller’s market then,” he says. “The couple wanted to get rid of their investment and they took my first offer – they didn’t even bother negotiating.”

Time to renovate

Pressing on with the purchase of an already tenanted property meant that Justin had to bite the bullet and stay in the family home for another year, but this allowed him to save towards the renovation kitty needed to bring the unit up to date after the tenants moved out. He estimates that he spent $28,000 on the renovation, transforming the property into the young professional pad that the location – and his lifestyle – warranted.

“It’s very modern, crisp and clean. There’s a white décor with dark timber floors and carpets in the bedrooms. I renovated the bathroom and kitchen, so it’s all been gutted and replaced. It has a really nice kitchen and outdoor area, so you could have a hard day at work, catch the bus or train home and relax,” he says.

All up, Justin estimates that the renovations – which took place in 2007 when the unit market in Brisbane was going great guns – added $50,000 to the property’s value, which wasn’t a bad return for his $28,000 spend. He now estimates its value to have increased by $125,000 on the purchase price to hit $385,000. After renovation costs, that’s amounts to a healthy capital appreciation rate of 48% in five years.

After making the most of his contemporary city pad for a couple of years, Justin moved on to his current PPOR in Stafford Heights, and has found that the renovated Windsor unit has proved to be extremely popular with tenants since he put it back on to the rental market.

“Since I left that property and rented it out, young professionals have really taken to it,” he explains. “When the first home buyers were really out in force, when the grants were happening, there were a lot of vacancies in Windsor and the inner city. But I never had that because the property was always in demand thanks to the renovation.”

He does admit however that with hindsight he would have renovated the property a little less to his tastes, and targeted the project more towards the tenant market. He wouldn’t have put carpets in the bedrooms for example, as they wear out quickly, and high-end fittings could have been forgone for more durable and practical alternatives.

“I used small square tiles on the bathroom for example, and if the tenants don’t clean the bathroom regularly it gets mouldy pretty quickly which is hard to get off the grout.”

All that glitters…

With the Windsor unit purchased and tenanted, Justin headed to the Gold Coast suburb of Southport for his next investment property purchase. At the time the GFC had yet to take hold, there were big plans afoot to improve the area’s infrastructure, and the area’s population was booming: The Gold Coast LGA saw its resident numbers swell by just over 34,000 between June 2005 and June 2009 according to ABS figures – a 7.5% population increase in just two years.

“The Gold Coast at the time had the highest population increases, it had announced the new rapid transit light rail system going through Southport, Surfers Paradise and the university, and they had also built a new hospital there as well,” explains Justin.

“So there were jobs, there was infrastructure and there was a lot there that was either in development or going into development.”

He therefore pounced on the purchase of a $255,000 two-bedroom unit in the hope that the Southport’s predicted increased economic prosperity would fuel decent growth in its property market. But the GFC had other plans, and Justin estimates that the unit’s value has only increased by $25,000 – or 9.8% – in the four-plus years since purchase.

“It’s underperformed, thanks to the GFC,” he says. “One thing that I’ve learned is that those tourist areas like the Sunshine Coast, Gold Coast and Byron Bay really get hammered when there’s a bit of a downturn. So that was a really good lesson.”

 Another valuable lesson that Justin was able to take from his Southport experience is that property prices don’t tend to head north in any big way until proposed infrastructure improvements actually come to fruition.

“I bought four years before the major infrastructure projects would be finished. I now know prices go up when infrastructure projects are finished and people can see and use them – not when they are announced or are under development,” he explains.

With these infrastructure plans now finally starting to become a reality, Justin expects that by 2012 Southport will start to show better signs of growth. In the meantime, the rent on his Southport unit has steadily increased to $290 – or 5.91% yield based on the original purchase price – leaving him with minimal holding costs until the time is right to put the unit’s increased equity towards branching out elsewhere.

“When that surge does happen I can pull my money out and buy in a major city in a CBD location: Sydney, Melbourne or wherever looks good at the time,” he says.

A dream realised 

In the meantime however, Justin’s step by step approach has allowed him to pool his resources and finally achieve the dream of owning his own house – a three-bedroom home in Stafford Heights that he bought for $432,000.

“My goal at the start was always to buy a house. Everyone wants a house; they want their own patch of dirt,” he says

And while it may have taken him several years to get his hands on that patch of dirt, Justin’s happy that he took his parents’ advice and started with a small purchase in a good area.

“I know a lot of friends who say that because they can’t afford a house, that’s it – property’s unaffordable. But it’s not really unaffordable; you have to lower your expectations a bit.”

Where to next?

Thinking like an investor has helped Justin to work towards financial independence, and he can’t emphasise enough how important it is to make sure that that first property purchase is a good quality one.

“It can really slingshot you towards great wealth,” he says. “The decision to buy in an area that I knew would see increased demand allowed me to buy two more properties and make a passive income that has allowed me to cut back my hours in my day job to focus on other ventures.”

And as for his own property investment adventure, other than ongoing renovations to his Stafford Heights home, Justin’s going to hold tight for the time being.

“I’m quite comfortable with my three properties now, and I may look to bring down my debt a little bit more before I go out and buy again,” he says.

“Since the GFC I’m not just looking at local issues, I’m looking a bit more globally. Everyone says if the States sneezes the world catches a cold. They’re in real trouble at the moment and it really worries me the amount of debt that they have and how they’re going to repay that. These sorts of things can really cause another downturn.”

He’s therefore been diversifying his investments to include gold, silver and commodity stocks. These sorts of investment – like property – are of real value, he says, but give him a certain level of insurance against serious falls in the property market.

And one piece of canny fiscal planning on the property front has allowed Justin to free up the cash flow to put towards his non-brick and mortar investments.

“With the GFC interest rates went down to about 5.2 or 5.4%, and I thought that might be a really good time to fix my loans – because before that I was paying 8% or 9%,” he explains.

So he locked away two of his loans for two years at what now seems like an astonishingly low rate of 5.9%, leaving one mortgage at a variable rate in case he got into trouble and needed to sell one of his brick and mortar assets.

All up, Justin still estimates that property still easily accounts for 70% or 80% of his overall investment portfolio, adding that the high leverage that property offers makes it such an attractive investment option.

“I’m still heavily invested in property, and I will buy more property in future because we’ve still got a growing population and there’s still demand in inner-city areas,” he says.

“Things could change – If they stopped immigration for example I’d really have to consider getting out of my property portfolio –but right now property’s still excellent.”