WHILE most millennials are struggling to save a deposit for one home, Gen Y couple Scott and Mina O’Neill own 25.
Unlike some 22 and 23-year-olds, who are fresh out of university and spending almost every dollar they earn from their first fulltime job at the pub every weekend, this Sydney couple were purchasing their first property — an ugly, old home in Sutherland, in Sydney’s south, which they bought for $480,000 to ‘rentvest’ their way into the market.
That was in 2010. Fast forward to 2016 and Scott, 29, and Mina, 28, own a 25-strong property investment portfolio worth more than $10 million.
Just three years prior to purchasing that first investment property in Sutherland, however, Mr and Mrs O’Neill had just $15,000 in the bank between the two of them.
But the decision to knuckle-down and save for the next three years was a very natural one for the pair, who both grew up with steadfast, savvy parents. They said it was this dedication that was really all it took to turn that $15,000 into their first deposit.
“My father was an accountant by trade but an investor part-time, so I was always interested in [investing] from a very young age,” Mr O’Neill told news.com.au.
“What made me really start thinking about [investing] was when I was about 12-years-old, my father told me to buy some Telstra shares … and I got about $50 back in dividends at the time. Fifty dollars when you are a child is a lot of money and I was pretty thrilled to get that for ‘free’, so that got me thinking about getting returns on money rather than just saving it.”
Mrs O’Neill, who is the child of immigrant Egyptian and Greek parents, said dedication was “ingrained” in her from a young age after seeing her parents sacrifice.
“Both my parents came from poor families, so saving was number one — saving to survive for your family was number one,” she told news.com.au.
“I was brought up in a family where a dollar could be two dollars if you put your mind to it. My dad invested as soon as he could get his cash on something. Coming from a very, very poor family with 12 siblings, everything was rationed. He had to work hard and he wanted return on that hard work.
“So all I did was work my butt off as much as I could, and sacrifice. Even though my income was very little at the time, every time I got it I would think how much I could set aside for myself and how much I needed to save to reach each goal.”
One you overcome the hurdle of purchasing your first property, the couple are adamant that building a portfolio is much easier.
“The first property is definitely the hardest and the second one is the second hardest, and so forth,” Mr O’Neill said.
“When you buy that first one — let’s say you purchase it for $400,000 and it grows in value to $500,000 over a few years, then you can go back to the bank and refinance 80 per cent, hypothetically, of the new purchase price. That will give you access to $80,000 — 80 per cent of the $100,000 growth — and you can use that to put a deposit on the next house.”
But they key to making sure you’re taking on good debt that you can handle is to focus on rental yields, rather than just capital growth.
“You have got to make sure the rent covers that extra debt you have caused on the first house and then the new debt on the future house. You don’t want to create an inward debt that just spirals,” Mr O’Neill said.
“The only way you can own a lot of properties is if you have a really good cash flow. We don’t look at anything under 6 per cent gross yield. Never neglect capital gain, but you can’t ignore cash flow — and that’s what people sometimes do.”
Building a successful portfolio is also about taking the emotion out of investing.
“Don’t buy in your own backyard … Getting emotional is such a bad thing,” Mr O’Neill warned.
“If you’re willing to think like an investor and invest outside of your comfort zone, or your local area, you can find what you need,” Mrs O’Neill added.
The couple may reside in Sydney’s eastern suburbs but their portfolio includes properties from all over Australia — from Cooma, a small town in southern NSW; to Port Macquarie, a coastal town in NSW; to Labrador, a beachside suburb in the Gold Coast; to Perth.
But the real golden rule to rentvesting your way to a multi-million dollar portfolio is: don’t be scared of debt.
“A lot of people are scared of debt and a lot of the critics reading this might say look at how much debt we have got,” Mr O’Neill said.
As they say, you’ve got to be in it to win it. And by making logical decisions, this couple prove there is such thing as ‘good debt’.
“[Our] portfolio will be positively geared at just under a 9 per cent interest rates. What that means is if there are 20 interest rate rises of 0.25 per cent, our portfolio will still be covering all its holding costs. The reason I bring this point up is it will help those who fear debt to understand that there is good debt and bad debt,” Mr O’Neill told news.com.au.
And if the pair were in that much crippling debt, then they wouldn’t have been able to quit their jobs — which they did, about two years ago.
The couple’s portfolio now includes 25 properties, valued at over $10 million, allowing them to “buy back their time” to travel and follow their passions.
Replacing their income through property investment has given them the freedom to travel — they recently spent six months travelling Europe and are off to Fiji in a few weeks — and the time to help others do the same. In 2014, the couple started their own property investment business, Rethink Investing.
“We always said it was for ourselves,” Mr O’Neill said. “We didn’t do this to get rich; it is about buying our time back.”
Mr and Mrs O’Neill now plan to continue building their portfolio, saying they would like to buy “at least five” properties a year.
To this day, they have never sold one of their investments, and yes, they are still renting themselves.
“To save to where you want to get is possible, you just have to be dedicated and put your mind to it,” Mrs O’Neill said.
Dec 7, 2016 Jennifer Duke wrote:
‘Co-buying’ – the strategy gaining traction with Australian first-home buyers
First home buyers are going to great lengths to get on to the property ladder.
Lauren Bush, 28, an admin assistant, couldn’t afford to buy her first home on her own. Despite this, at the end of November, she had managed to get a leg on the property ladder.
She joined forces with her younger brother, 24, to halve the costs – and their parents stood guarantor – so they could buy a $665,000 three-bedroom house in Condell Park, in Sydney’s south-west.
Currently using the home as an investment, she said they bought it as a potential first home for her and her fiance with the property being near good schools and transport.
“Neither of us wanted too much risk or commitment, and it was a good way for our parents to help us both,” Ms Bush said.
“We have looked for a property for about a year and had agreed that we would go 50/50 on everything.”
This strategy, also known as “co-buying”, is becoming an increasingly popular way for young home buyers to get on the property ladder.
Mortgage Choice spokeswoman Jessica Darnbrough said it had also seen an increase in first-home buyers co-buying with friends and family – from 7.9 per cent of first home buyers in 2014 to 9.2 per cent in 2016.
“Given that property prices have risen fairly consistently across most markets in Australia, it is little wonder why we have seen an increase in the number of first home buyers who are buying property with their friends and family,” she said.
A recently launched company, called coHome, promises to help young Australian homebuyers do just this – by providing a platform to help co-ordinate the co-buying process. When it surveyed 350 people in the Millennial age bracket, it found 60 per cent would consider joint ownership with friends or family.
“Over 35s would probably never [co-buy] but the reality is we’re in a sharing economy and it’s just a conceptual hurdle,” chief executive of the site Josh Littin said.
“Buying alone isn’t the only option.”
He pointed to cities overseas, such as Vancouver, where the concept is taking off.
In Australia, it’s likely co-buying will become more popular, with RateCity research finding one in seven Gen Ys requiring three incomes to afford repayments on a first home and 50 per cent needing help from their parents.
These “staggering” results found that most people wouldn’t be able to buy on their own, RateCity data insights director Peter Arnold said.
“A double income doesn’t cut it for a lot of young would-be homebuyers now. House prices are on the rise, as is cost of living, so it’s really hard to save for a deposit,” Mr Arnold said.
“That’s why the bank of mum and dad has never been so popular … While not all parents will be wealthy enough to contribute financially towards the deposit, many are helping out in other ways by going guarantor on the home loan and buying together as ‘co-borrowers’.”
But there are some downsides to the strategy.
Firefly Wealth certified financial adviser Adele Martin has had several clients buy with family members, but in some cases the outcome wasn’t ideal.
One client, who bought an investment property with his father, later decided he wanted to purchase his first home.
“Now he is buying his home, having that investment property impacts his ability to borrow,” Ms Martin said.
“Even though he only has a loan on half of it, the whole loan is assessed against him.”
For many, it’s also a case of carefully planning for the worst-case scenario upfront, when relationships are amicable.
In one situation, a couple bought a holiday home with their brother and sister-in-law. But when one of the couples broke down and had to sell their part of the property, the other couple were unable to afford to buy their share, she said.
They had to sell, much earlier than they’d hoped.
“Have that conversation – it could be that [someone] passes away, gets separated or divorced … have a strategy and be upfront with a solicitor to help you facilitate it,” she said.
ME head of home loans Patrick Nolan said the attractions of co-buying include increasing the borrowing capacity of the home buyers, potentially avoiding lender’s mortgage insurance and sharing the ongoing costs of maintenance, rates and insurance.
“With property values remaining strong, the trend of co-buying looks set to gain momentum. It could be just the solution that allows young buyers to climb the property ladder while bringing families and friends closer together,” Mr Nolan said.
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