With the purchase of seven properties in seven months, Melbourne’s Cameron Patterson could be the poster child for positive thinking and positive cash flow. Graham Brown finds out where he got the confidence to climbreal estate’s Mount Everest
It’s been a time of new beginnings in recent months for 35-year-old Cameron Patterson, who works full-time as a pharmaceutical business development manager.
He bought seven properties in seven months to kick off his property expedition, and while his beloved Geelong Cats were tumbled out of the Australian Football League finals, he believes they have turned the corner.
“They had a tough year with an ageing list, but they have drafted well and I think they will be challenging again for the premiership within four years,” he promises. He also reminds Your Investment Property that the Melbourne Storm took back the National Rugby League Premiership trophy to Victoria as well.
Cameron loves his sport, and not just as a couch jockey. Most weekends he finds time to run a few laps around Melbourne’s picturesque Botanic Gardens and get to the gym.
“I like to get to the gym most days or go for a run, and I try and do a couple of 14km fun runs each year. I do it [exercise] more to unwind.I find it de-stresses me and a good workout allows me to clear my head,” he says.
That level of fitness is not wasted on his holidays either – no Dan Brown books on a Balinese banana chair for Cameron. His choices seem particularly, if gruellingly, active.
“There will be a day when I can no longer do these types of things… Today is not that day,” he says. “So last year I went on an African safari and the year before I did the Everest Base Camp trek. I plan to do the Inca trail in South America [43km] and the Kokoda trail in Papua New Guinea [96km].
“For Everest, seven of us flew in to Lukla at 2,830 metres and then you hike up to base camp and Kala Pattar at 5,545 metres, so you are about two thirds of the way up the mountain. It’s 10 days of hiking up and three days down, and it was an amazing experience.”
All that exercise has certainly given him clarity when he talks about his portfolio and plans for the future. Cameron says he’s pocketed seven properties since March,worth about $1.7m in total (gross). While it’s early days, he is already seeing returns of more than $2,000 per week in rent,and
Think positive (cash flow)
“I know a lot of [potential] investors are sitting back, not willing to take that first step. Become educated and get a good team around you. Buy positive cash flow property and make sure the deal stacks up,” he says matter-of-factly.
But what about the malaise in every property market that doesn’t back on to a billion-dollar mine?
“I believe there are opportunities in any market,” Cameron says. He believes that NSW has “turned the corner” after its “significant plateau”,and Queensland will eventually follow suit. “Take my $175,000 purchase in western Sydney or the $200,000 one in northern Queensland. Both exhibit strong cash flow, have great instant equity and good depreciation,” he says.
Cameron kicked off his portfolio with equity in his Melbourne home/principal place of residence [PPOR], which he bought in 2003,and an 80% loan-to-value ratio to avoid Lenders Mortgage Insurance and maintain a positive cash flow. Because he had paid off the PPOR, Cameron had the flexibility to effectively slice up his equity to cover his deposits, stamp duty and legal fees on each of his monthly purchases.
He purchased,in his name,a one-bedroom unit in Liverpool, NSW, for $175,000 in March 2012,with a 20% deposit plus stamp duty and legal fees (about $40,000) taken from the equity in his mortgage-free PPOR ($280,000).
Cameron then revisited his original equity to purchase a one-bedroomunit in Frankston
, Victoria,the following month for $118,000, which has now been revalued at $150,000; and two units (two-bedrooms) in Blacktown
, NSW,for $215,000,each purchased in May 2012.
Cameron says those two Blacktown premises have since been revalued at $240,000 each,and he has used that equity, as well as the equity in the Frankston purchase, to purchase his remaining three Queensland properties. Those were a three-bedroom unit and a two-bedroom unit in Cairns in June 2012,and a three-bedroom townhouse on the Gold Coast in September 2012.
He purchased the three properties for a total of $600,000 and says they are now valued at a total of $740,000. Cameron also never budged from the 20% deposit rule he set himself.
He says that,while it’s early days, everything has run smoothly in terms of finding tenants,but he is looking at locking in his interest rates in the near future,which will “make my yields look prettier”.
Cameron says he wouldn’t do anything different in terms of his strategy of buying properties around the $200,000 mark in areas with low vacancy rates,and even with the new mortgage payments on his PPOR and portfolio, he is still in front
(if only just) at the end of the month.
He explains that on top of reducing his tax bill, the real incentive is the potential growth he can look forward to with his rental yield. “If I increase one property by $10 per week, that equates to $520 per year, and across all seven properties that’s a $3,640 annual increase,” he says.
“I have been thinking about investing for a long time. I’ve been to a lot of seminars and met many rogue operators who push negative gearing off-the-plan properties worth between $600,000 and a million dollars.
“They are always pushing the fact that negative gearing reduces your tax, and this is true, but there are other ways of doing that. I came across Nathan Birch’s [of Binvested.com.au] story. His positive gearing and buying below-market-value properties approach is risk averse,and it gets the best results in the shortest time. He also has personal experience to back it up.
“The other benefit of positive cash flow is that it doesn’t impact on your lifestyle. If you have three or four properties negatively geared, you have to put money from your own pay packet into them, and you will eventually reach a point where it’s impacting your lifestyle. And if you lost your job, you may not be able to cover the shortfall and could potentially put your portfolio at risk,” Cameron points out.
“I think property is a long-term buy-and-hold proposition,with my goal being to accumulate passive income. I have no plans to sell but, if I had to,it would tax effective. Maintaining a flexible portfolio will keep options open foryou down the
Getting started at base camp
“You should be trying to maximise the use of your deposit through the right purchases but also be trying to maximise your return through structuring your portfolio in the most tax-effective way,” Cameron says.
“Before March I had one PPOR. Now I have seven investment properties that have allowed me to minimise my personal tax for the rest of my life, I have an additional income stream (which grows with rental increases),and I have a large-value
investment portfolio (which has capital growth).
Cameron lives by the adage “Make sure the property makes you money from day one”.
“The deal itself and how it complements the rest of my portfolio are my biggest drivers. The numbers need to work. You can buy a place with a dodgy kitchen and put in a new one for $4,000. But if you buy a place for $30,000 over market value, you can’t make that up. The deal is just as, if not more important than,the actual bricks and mortar.”
To that end, Cameron has made no renovations–only minor repair work costing less than $1,000.
Reaching the peak of the mountain
Not surprisingly, Cameron has big ambitions,wanting to purchase another four properties by mid next year.
“In the medium term I want to get to 15; build a strong equity base with good cash flow. From this platform I should be able to buy a couple each year using the capital growth. In the long term, I would like to have up to 30 properties.”
Does he have any tips for would-be investors?
“If you are going to get advice, get it from someone who actually owns properties,” he says.“I spoke to several people who were offering deals and didn’t have any themselves. Make sure they are trusted. They should be able to answer all of your questions and have your medium- and long-term plan in mind. If they try and put any pressure on, be sceptical. Ask yourself: what’s in it for them?
“These are large financial decisions and the wrong move can stop or delay you from reaching your goals or,worse still, send you backwards.
“I think everyone should have up to four positively geared investment properties,and what a lot don’t understand is that this is achievable with a relatively small deposit. We should all be trying to work smarter, not harder.”
Can you afford to buy in this suburb? Find out how much you can borrow