In the past 10 years, Lloyd, a music teacher from Sydney, has successfully learned to harmonise the task of building an impressive investment portfolio without ever losing sight of his goal – achieving financial freedom within a seven- to 10-year timeframe. “My long-term goal was always to secure my financial future, because I didn’t think superannuation would suffice,” Lloyd explains. “I was single when I started, but I am married now and we are planning a family, so that’s a big part of wanting to create financial security.” Lloyd’s wife Renee, 27, is a chartered accountant, and while they continue to share a deep passion for music, they did not always share a passion for property. “We met through music, quite romantically, as I was the conductor of the band she played in,” Lloyd says. “Renee had no interest in property investing prior to meeting me, but she is now very interested and we talk about it all the time.”
The couple married in 2012 and Renee is now doing an interior design course and loves going to look at properties with the aim of investing in and possibly redecorating them.
“She enjoys it, mainly the idea of design, but she does not yet have the same passion as me. Often I will be researching the next area to buy property, while she researches the next shop to buy shoes.”
Starting out close to home in 2004, Lloyd purchased his first property, a one-bedroom apartment in the Sydney suburb of Rockdale, for $270,000. Using the First Home Owner Grant and some savings, Lloyd borrowed 80% of the purchase price, and his journey as a property owner began.
“My first purchase was not straightforward because I was selfemployed at the time,” he explains. “I had some problems with finance so I used a low-doc loan with a 20% cash deposit to purchase the property.” Developing an extensive property portfolio was not the initial plan for Lloyd; in fact he says that at first he only ever envisioned owning two or three properties. But the future would pan out quite differently for the savvy investor. “I was not particularly focused on creating some great big portfolio at first – that came later,” he says. “When I bought my first property I was only interested in getting into the market and getting started.”
Over the next five years, Lloyd continued working as a musician and music teacher. By 2009 he had saved enough of a deposit to buy his second
property, a villa located at Ingleburn in Sydney’s Inner West. Lloyd used a 10% cash deposit to secure the property, at a purchase price of $252,000, and his property portfolio began to take shape. “This was to be a buy-and-hold cash flow property,” he says. “It offered a good rental return at $360 per week and showed the potential for steady capital growth over the longer term.” While Lloyd’s strategy for this property would change in the next four years, the successful purchase gave him the confidence he needed to keep moving forward.
“I started to read all the property magazines out there and books, and I was learning as I went along,” he says. “I also went to seminars and was inspired by success stories of people who were enjoying growth in mining towns like Port Hedland, and so I decided to take action.” In 2010, with the help of a property broker, Lloyd accessed the equity in his properties to purchase a house in the small town of Blackwater in Central Queensland – population 5,000 plus.
While most investors would baulk at the idea of investing in such a small town, Lloyd had done his homework and knew that although Blackwater might be small in terms of population, it also went by an alias: the “coal capital” of Queensland.
Home to six open-cut coal mines, including one of the largest in Australia, Blackwater produces over 14 million tonnes of coking and thermal coal a year, sold to markets all over the globe. Lloyd, together with his broker, soon secured a three-bedroom house in the mining town for $250,000, with no money down and a rental yield of 9.1%. “It was well under intrinsic value as it was on the market for $289,000, and acquiring the services of a buyer’s agent helped get a good purchase price, making it a true deal,” he explains. “I used the same lender and managed to secure the property with no money down by borrowing 106% of the purchase price – I’m not sure I could do that again these days.”
Rental yield has remained strong for Lloyd at $440 per week, and his property is still tenanted by the same company. According to Lloyd, the advice and assistance offered by his buyer’s agent was invaluable, so much so that it would later inspire him towards a career change. Having a solid relationship with the broker also meant Lloyd did not feel the need to visit the property in Blackwater in order to make the purchase.
“I used his advice and got all the inspections done,” he explains. “I looked at a lot of photos and did some comprehensive research on the area. I never felt nervous about it and it has turned out to be a positive investment.” Lloyd believes another important step he took to ensure that his purchase would pay dividends over the long term was to choose his tenant carefully.
“The company is not mining, but a business that hires equipment to mining companies,” he says. “So even if a particular mine closes down, the company who rents this property from me can still stay in business as they work with several mining companies in the area.”
This proved to be a smart move as although the mining sector has slowed down over the last 18–24 months, Lloyd’s tenants remain steady. The property has a current value of $340,000, signifying capital growth of $90,000 in four years. “My strategy here was to use this as a ‘trading’ property and also add strong cash flow to my portfolio. I have an exit strategy to sell this property when the market picks up and put the profits into other areas of my portfolio.” With the third string in this musician’s bow now secured, it was time for Lloyd to face his next challenge.
Taking the plunge
After a six-month whirlwind romance, Lloyd and his new partner Renee felt it was time to take their vows, not of matrimony but of joint property ownership. “In 2011 we bought our first property together, a three-bedroom house in Sydney’s Inner West suburb of Lewisham, for $750,000,” he says. “We had been dating less than six months, but we just knew it felt right.” The property is now valued at $1m and is the couple’s principal place of residence.
“I had a family inheritance that helped on this one, so I could pay a cash deposit of 20% on purchase,” Lloyd explains. “The Inner West area leads Sydney’s property ‘boom’ and my plan for the future is to either sell and help fund our ‘dream’ home, or keep it as a blue-chip IP and use the equity.”
What dreams are made of
The future goal for the couple is to move to the NSW south coast and purchase their dream home – a two-storey waterfront property valued at around $1.6–$1.8m. “We imagine a five- or six-bedroom home because we are planning a family, with a pool and a spa and three-car garage for our cars and bikes,” he says. “The idea is to achieve this with as little debt as possible.”
Parting ways and moving on
The couple did decide to sell the Ingleburn property in 2013 for an after-expenses profit of around $55,000, which they used towards Lloyd’s first property development venture. “The two options I had were to either refinance Ingleburn or to sell,” Lloyd explains. “I would get more money from a complete sale, as a refinance at either 90% or even 95% would not give me as much cash as the sale of the property, especially as bank valuations tend to be lower than what I would ask as a purchasing price,” he explains.
In the same year, Lloyd returned to the Queensland market to make his fifth purchase – a three-bedroom villa in Toowoomba. This was a good choice as experts class the city as one of the best places in the country to invest in, because of its affordability, strong rental yields, growing economy and strong infrastructure spending. It is also considered one of the best places in Australia to find a job, with an unemployment rate about 1.5 percentage points below the national average. With the idea that he needed a property for long-term gain, Lloyd bought the villa for $299,000, with a rental yield of $320 per week, or 5.5%.
“I purchased it brand new, allowing maximum tax deduction using the tax depreciation report prepared by a quantity surveyor,” Lloyd says. “The property is in a potential growth area, so it should see some good growth over the long term.”
Lloyd is in the process of completing his first property development – a duplex at Armidale. Strata titled and with three bedrooms in each unit, it is scheduled for completion in the next seven months. Despite some initial hiccups with builders and lenders, Lloyd believes property development is the way forward in terms of achieving equity fast.
“We had some problems with financing and builders because the lender refused to complete the finance until the plans were finalised, and the builders wouldn’t finalise the plans until the finance was complete – so we were caught in a catch-22 situation.” The festive season being in full swing did nothing to help Lloyd’s dilemma, with the industry slowing down over the Christmas break.
“Eventually we sought a different lender and the land owner wasn’t too fussed with the delay. I think he was overseas on a boat somewhere, so in the end it turned out,” Lloyd says. With finance is now secured and builders expected to break ground within the next month, Lloyd is looking forward to what he hopes will be a trouble-free build followed by a decent-sized profit.
“The purchase price including land and build was $602,000, and there is a six-month build clause in the contract,” he explains. “Having spoken to a number of real estate agents in Armidale, the duplex halves will be worth around $365,000 each in the current market, equating to more than $100,000 profit once you take away the LMI and other purchasing costs.”
Lloyd says his plan is to eventually refinance the properties and use the equity to fund another project, probably another duplex, or even look at something bigger like a quadplex. “I’ll definitely continue developing, and with a 10-year capital growth rate of 9% in Armidale, there will be some more value realised in the properties. The profits realised at this point will help pay down some of my other debts, including our PPOR mortgage, and paying off some of the debt on the blue-chip investment properties.”
Investing in the future
Lloyd’s success has inspired him to not only continue his journey of investing in property, but also help and inspire others to do the same. “I have just started doing a buyer’s agent course in NSW, which I will then follow by getting a full real estate licence,” he says. “I have real passion for helping others; it’s the teacher in me. And I would like to offer services where I can help people purchase properties, saving buyers the stress, legwork, and also save on the purchase price.”
Lloyd’s wife also plans to be involved in the business, using her accounting skills, and together they already have some ideas for a company name. “I intend to register the business name this year, possibly calling it ‘Leading Edge Properties’, as our surname is Edge.” Lloyd believes you can’t underestimate the value of good, solid advice from someone who has already been successful in property investing. “I found a mentor and it really helped me, someone I could go to whenever I needed advice; and through that I also learned about keeping on track, making a five-year plan and being accountable for it,” he says. “Knowing I had a mentor who had achieved what I want to do, and that’s create real growth and dollar security as quickly as possible, has been a great help.”
This article was published in the June 2014 edition of Your Investment Property magazine. You can subscribe to the magazine here.