PRINT POST APPROVED PP431206/00010

Australian

PropertyInvestorAUGUST 2005 www.apimagazine.com.au

AUS $8.95NZ $8.95 (incl.GST)

FOR HOMEBUYERS, INVESTORS AND PROPERTY PROFESSIONALS

This young couplewith four kids have

four properties. Theirplan is to have 20!

n Strata officesn Insuring your

best assetn 11 properties

worth $4m, in only 7 years!

TOP TECHNIQUESfor today’s market

PLUS: Free taxsoftware CD

54 AUSTRALIAN PROPERTY INVESTOR AUGUST 2005 WWW.APIMAGAZINE.COM.AU

$115,000 gain in 8 weeksAbout three years ago, Simon and Julie Macken were profiled in API.Since then they’ve continued to invest in property. We revisit theMackens as they tell how their latest renovation has paid off inhandsome gains and rental returns.story Geoff Doidge photography Steve Keough

PROFILE

WWW.APIMAGAZINE.COM.AU AUGUST 2005 AUSTRALIAN PROPERTY INVESTOR 55WWW.APIMAGAZINE.COM.AU AUGUST 2005 AUSTRALIAN PROPERTY INVESTOR 55

When we last spoke to Julieand Simon Macken(April/May 2002) theyhad just quit their dayjobs to become full-time

property investors. Quitting your day jobmay seem like a big step for some, butthis couple didn’t find it so daunting.

Julie jokes that she’s had more jobsthan most people have had hot breakfasts,so she’s not one to get attached to a jobor feel any loss of identity by giving oneup. Before quitting her job in the publicservice in Canberra, she’d worked inmany other office jobs both in Canberraand in Sydney. She’d also worked in sales,performed as a musician and singer,done some waitressing and worked in apharmacy. She relishes the idea of havingmany skills and changing identities, and

is currently reinventing herself as a writer.And of course she’s still a propertyinvestor!

Simon is also no stranger to varietyand has done his fair share of job hoppingtoo. He’s worked as a music teacher byday and musician by night. He’s evenrun a small dairy goat farm and workedas a zookeeper and cleaner. His originalbackground was in steel fabrication andconstruction, which has come in handyin his new career as a professionalproperty investor.

Three years ago, Julie and Simon hadmanaged to put together a sizeableportfolio of properties in their hometownof Canberra. At that stage they’d justdipped their toes into the Sydney marketwith a purchase in the Forest area andthey had also recently bought a beachfrontunit on the Gold Coast.

First we’ll tell you about their latestrenovation – which was a very lucrativeventure – and then we’ll fill you in onwhat the Mackens have been doing sincewe last spoke to them.

Case study: duplex renovationThe importance of teamwork and usefulcontacts was reinforced last year whenJulie received a call from a real estateagent that she knew.

The Mackens had previously boughta property from this agent and had keptin touch with her, as she was reliableand experienced.

The agent told Julie that she had justreceived a listing but that it had someproblems. Knowing what Simon wascapable of with his renovation work, theagent decided to give them a call beforeputting the property on the market.

Before even looking at the property,the couple knew that it was a relativebargain. It was a duplex in the suburbof Fisher in Canberra and the askingprice was $315,500. The property hadbeen neglected for some years and neededa serious cosmetic makeover. The gardenwas full of beautiful rose bushes andalthough once a real showpiece, it wasnow overgrown and in need of attention.

Simon and Julie purchased the duplexwith a strategy in mind. They wanted toget the renovation over and done withas quickly as possible and then get the

property back on the rental market. Soit was time to get to work.

First up was a complete interior andexterior paint job. New carpets and floorcoverings were laid. The light fittingswere replaced. New window coveringswere installed. A new stove and ovenwere purchased for the kitchen. Out theback, some rotten decking was replaced.And the garden was given a majoroverhaul in order to bring it back to itsformer glory. The rose bushes were onceagain a showpiece.

After eight weeks, everything was done.Simon and Julie spent $21,000 on therenovation, so their total costs were$336,500 (not taking into account interestpayments and transaction costs relatedto the acquisition).

Simon called the agent back in for alook at the finished product before it wasrented out. The agent appraised theproperty at $450,000 plus, based on thedramatically improved rental return of$540 per week. That’s a gain of over$115,000. Not bad for eight weeks work.

It’s deals like this one that havepropelled the Mackens from beingordinary ‘mum and dad’ investors torunning a substantial property business.

Back to businessSo what else have Simon and Julie beenup to since we last wrote about theirinvesting journey?

In 2002, they had to review theirstrategy and goals to allow for their newfinancial structure. Having just become

ä Property location: Fisher ACTä Property type: 2 x 3-bdm duplex on

one block, with viewsä Purchase date: August 2004ä Purchase Price: $315,500ä Reno cost: $21,000ä 2005 market value: $450,000+ä Current rent: $540 per weekä Gross equity* gain (after reno):

$135,000ä Gross yield (including reno costs):

8.4%*Gross equity is the value after the renovation less thepurchase price. This is the increase in valuation used forrefinancing. Purchase costs and renovation costs notincluded.

Duplex case study

© Australian Property Investor magazine - www.apimagazine.com.au. Reproduced with permission.

full-time investors, they no longer hadincome from wages but were relyingsolely on rental income and equity fromtheir properties. This meant that theyhad to rethink how they approachedlenders.

They were rejected by a couple of majorbanks because they were considered tobe too “rent reliant”. They wanted to betaken seriously and considered asprofessional investors by lenders. So theydecided to draw up a business plan.

Simon and Julie found a template fortheir plan on the website of a major bank.Then they sat down together anddeveloped it. They found this had twobenefits. It gave them a tool with whichto approach the banks but it also madethem qualify and quantify what they hadachieved. It also involved risk assessmentand future planning. This process gavethem renewed confidence and the firstbank to see their business plan financeda new purchase and also refinanced twoother properties.

By 2003, the property market inCanberra and Sydney had risensufficiently for the couple to continue touse their equity to fund further purchases.With considerable capital growth up theirsleeve they also discovered that they couldapproach one of their lenders to releasea security by shifting the loan on toanother property that had achievedsufficient growth to house the additionaldebt. This meant a free title to use asfurther security.

The Mackens were able to repeat thisprocess several more times during thatyear. Julie comments that having free

titles is like holding wild cards that youcan use at any time to leapfrog ahead tothe next deal.

Balancing their portfolio growth is animportant part of the couple’s strategy.Simon is constantly crunching thenumbers and has developed numerousspreadsheets to monitor their portfolio.These include equity retrieval, propertyevaluation and various financial positionscenario spreadsheets. There is also acomplete financial tracking history foreach property including renovation,holding and maintenance costs. Simonlikes to know exactly where they arefinancially from month to month.

He now treats their portfolio like a

business by regularly monitoring whatgoes in and what comes out. Simon saysit’s not exactly rocket science but admitsit has become more complex and timeconsuming as their portfolio has grown.

Property management is another areawhere the couple say they have benefited

56 AUSTRALIAN PROPERTY INVESTOR AUGUST 2005 WWW.APIMAGAZINE.COM.AU

PROFILE

from knowledge and experience.Following a few early mistakes, they nowunderstand the importance of followinga system and being familiar with thelegislation that governs residentialtenancies.

They have also found that whileproperty management issues often forcethem to be firm with their decision-making they also need to remain flexibleat times when it comes to problemsolving.

The Mackens now self manage all oftheir Canberra properties. They enjoyhaving the personal contact with theirtenants as this allows them to deal withissues quickly and directly.

They advertise their Canberra rentalson www.allhomes.com.au. They also usethis site to research the Canberra market.But as time goes on it seems thatCanberra, which once comprised 100per cent of the Mackens’ portfolio, isbecoming less important.

(Geoff’s tip: As a self manager withmore than 30 years experience I can tellyou self management is initially not easy.My first tenants were bikies! It would bevery easy for the inexperienced managerwho is unaware of the legislationgoverning tenancies to get into all typesof trouble, especially with a tenant who‘knows the ropes’. Get some trainingfrom the Real Estate Institute courses inyour State and join the not-for-profitProperty Owners Association in yourState for support. Another idea is toinitially accompany your propertymanager on inspections to see what theydo and how they do it).

RIVETT, ACT FISHER, ACT WESTON, ACT BILINGA, QLDProperty type 3-bdm house 4-bdm ensuite 2-bdm, ensuite unit

3-bdm house with 2-bdm flat, house, with in block of 12, with 1-bdm flat with views mountain views beachfront

Purchase date June 2002 August 2003 June 2000 July 2001Purchase price $225,000 $380,000 $192,000 $163,500Reno cost $18,000 $8,000 $8,000 $3,0002005 bank value – – $445,000 $430,000Rental return $500 per week $645 per week $390 per week $255 per weekCurrent market value $380,000 $480,000 – –Gross equity* gain (after reno) $155,000 $100,000 $253,000 $266,500Gross yield (including reno costs) 10.7% 8.6% 10.1% 8.0%*Gross equity is the value after the renovation less the purchase price. This is the increase in valuation used for refinancing. Purchase costs and renovation costs not included.

Mackens’ portfolio – sample case studies

The Mackens now selfmanage all of theirCanberra properties.

They enjoy having thepersonal contact withtheir tenants as thisallows them to dealwith issues quickly

and directly.

WWW.APIMAGAZINE.COM.AU AUGUST 2005 AUSTRALIAN PROPERTY INVESTOR 57

Having just become full-time investors, they no longer had income from wages but wererelying solely on rental income and equity fromtheir properties. This meant that they had torethink how they approached lenders.

Why Sydney?In recent years, Sydney has become thefocus of the Mackens’ investment strategy.But as with all of their Canberra purchases,there is a solid amount of local knowledgeinvolved. Simon spent some of hischildhood years in Sydney, and Julie wasborn and raised there. She lived innumerous houses on the north shore –which is now the focus of her attention.

When the couple managed to securefinance to fund their first Sydney propertyin late 2001 they had overcome the majorhurdle of buying back into the Sydneymarket. The growth from their Canberrapurchases allowed them to get back intoa market they’d thought was out of theirreach only a few years earlier.

The Mackens have gone on to buy twomore properties in Sydney – a two-bedroom unit on Balmoral slopes withstunning harbour views and another largehouse in Killarney Heights.

Their reasons for buying more propertyin Sydney are a combination of personaland business goals. The couple agree thatSydney is a great place to own real estate.Having travelled around Australia andoverseas, they believe nothing comes closewhen you look at what Sydney has to offer.

They love the lifestyle, the beaches, theharbour, and the excitement of the place.

The Mackens’ three Sydney propertiesare all among luxury homes on valuable,highly prized land. This means they’renot likely to overcapitalise if they chooseto rebuild or improve. Also, the properties

are poised to provide further high capitalgrowth because of their desirable locationsand features including ocean, harbourand city views.

Julie and Simon regularly scan theinternet and local papers to keep up withproperty prices and trends. They do thiseven when they’re not actively lookingfor a property and often find that theywill stumble across a deal that’s too goodto pass up. They both enjoy doing theresearch and never consider it as “work”but more a fun way to spend time together.

They are currently monitoring theSydney market in readiness for their nextpurchase.

TeamworkAn important feature of the Mackens’strategy is to find great people to workand network with.

Naturally, Simon and Julie are theteam’s foundation. They love workingtogether and agree that they complimenteach other.

They hold regular business meetings,sometimes daily depending on theirworkload and time pressures. They also

meet regularly to talk about future plansand goals.

The couple enjoy mixing with otherlike-minded investors and business peopleand have found many useful contacts inthis way. They consider the people theydo business with as valuable membersof their team. These include people suchas their accountant, solicitor, broker, realestate agents, managing agents andtradespeople.

Lifestyle changeOver the last few years the Mackens havetaken several overseas trips as well asnumerous trips around Australia. Julielikes being able to hop on a plane andtake a trip at short notice. Both her andSimon enjoy the freedom and variety ofchoices that have come as a result of theirsuccess. They’ve both worked hard andare now pleased that both they and theirfamily can reap the rewards. They hopeto inspire others to do the same. n

For information on Geoff Doidge’s RenoKings workshops, visit the website at www.renos.com.au

© Australian Property Investor magazine - www.apimagazine.com.au. Reproduced with permission.

Australian

Special API magazine subscription offer!

YES! I’d like to enjoy the convenience of home delivery.Please send me the next 12 issues for only $75 or24 issues for only $129 of Australian Property Investor.

SATISFACTION GUARANTEED: You may cancel yoursubscription any time and we’ll refund the cost of allunmailed copies—no questions asked.

NAME

COMPANY

ADDRESS

CITY

STATE POSTCODE

PHONE

PAYMENT DETAILSCheque/Money Order* enclosed or please charge my:

Bankcard Visa Mastercard

Diners Club American Express

CARD NO.

NAME ON CARD EXPIRY DATE

SIGNATURE

* Please make cheques payable to Australian CommercialPublishing. Prices include GST where applicable.

Or fax order to 07 3720 9322, or post (with payment) to: Australian Commercial Publishing, PO Box 1434, Toowong DC, Qld 4066

API magazine is a MUST-READ publication for serious property investors. Each copy is packed with informative features,case histories of successful investors, investment tips and strategies, median house prices and much more.

Now, for a limited time, Australian Property Investor magazine is offering Loans Approved clients a special discountedsubscription offer of only $75 for the next twelve issues (normally $85 for 12 issues) or a 2 year option for only $129!

Simply complete the subscription form below and you’ll save $10 off the normal subscription price and enjoy theconvenience of home delivery as well. That’s only $6.25 a copy – a saving of $2.70 (or more than 30%) off the cover price!

You need to hurry, this special offer MUST be returned by fax or mail by the 30th November 2007!Don’t miss a single information-packed issue... subscribe NOW!

Happy reading… and happy investing!

To order by post or fax, please complete the order form below:

FOR HOME BUYERS, INVESTORS AND PROPERTY PROFESSIONALS

For details on one of Australia’s widest ranges of property/finance books, visit us online at www.businessmall.com.au

To order by phone with a credit card, please call 1800 888 788 and quote Special Offer Code LOA-1.

InvestorInvestorPropertyProperty

SAVE morethan 30% off thecover price!