Your Investment Property Magazine
October 2011: Kevin Eddy
Brad Paas’ property journey began over a decade ago, while he was an apprentice carpenter.
“I used to spend every penny of the little money I had on road trips with my mates, and most other weekends surfing at Phillip Island and going down to the pub,” explains 32-year-old Brad. “Once I finished my apprenticeship, I started a small business with a mate, Jarrod Swan, called Too Good Carpenters. I started making good money and wanted to do something with it.”
Brad started looking at the stock market, but found it too confusing. However, after surfing at Phillip Island one weekend, he found something that interested him.
“We had the munchies after a surf, and while we were walking to Dr Food I picked up a real estate brochure and noticed blocks of land at Cape Woolamai going for $10,000,” continues Brad.
“I thought about buying a block and using my skills to build a holiday house.
However, I went out and bought myself a new car and surfboard instead.” Brad didn’t think about the blocks of land for six months, but when he did, he got a shock.
“Six months later, the same blocks were going for $30,000!” he says. “I couldn’t believe it. So, before they went up any more, I asked Jarrod if he was interested in going halves.”
Jarrod certainly was – and the two carpenters had timed the purchase just right. Buying the land and constructing a three-bedroom, two-bathroom home cost them a total of $95,000. In the time it took them to build, land values alone had soared to a whopping $180,000 for a similar size block.
“I was pretty well addicted after that exercise,” adds Brad. While the property has not seen significant capital growth, it has served Brad and his family – wife Kelly, four-year-old son Jake and baby daughter Kayla – well over the years as a holiday home.
“Until recently, the most we could rent it for was $250 a week – we decided we’d rather use it than give up the holiday home, especially when you’ve got to go halves on the rent with your business partner,” says Brad. However, things have changed recently. The advent of a new desalination plant at nearby Wonthaggi has seen workers flood into the area – and workers need housing. This has seen weekly rents rocket, and Brad’s now renting the property for $400 pw.
The property at Cape Woolamai wasn’t Brad and Jarrod’s last investment – although it wasn’t until 2006 that they bought again with investment in mind. First, Brad and Kelly purchased their own home, a property in Rowville.
“We bought the cheapest house in the area for $212,000 and spent the next three years doing major extensions and renovations,” explains Brad. “We thought we were going to be there forever. However, in 2007, we decided we needed a sea change, sold that house and moved to Mornington.”
Before relocating, Brad also invested in two more properties in 2007 – two back-to-back units in Frankston South. “Jarrod and I originally bought a two-bedroom unit in Frankston South, but told the agent if the owner of the rear unit wanted to sell, we would buy that, too – and we did.”
The pair carried out some renovations to these properties – immediately increasing their equity – but Brad always had a longer-term plan in mind. “Frankston is a perfect location, but it’s known as being a bit of a slum area,” explains Brad.
“It’s close to [prime suburb] Mount Eliza, and also has a large jetty and foreshore. However, all the shops point the wrong way – away from the water – and it was pretty run down.” The local council’s efforts to clean up the area is having an impact on values, though.
“I’ve been watching Frankston over the years and it’s been slowly getting better and better,” adds Brad. “There are plans to build a marina and luxury apartments; the main street is also being changed so the shops face the Kananook Creek and the bay.”
In fact, Brad was so convinced of Frankston’s potential that he and Jarrod bought their next investment there three years later – a 1970s single-storey house in the very same street.
“The location is perfect. The street is around 1km from the centre of Frankston and 400 metres from the beach and foreshore,” explains Brad. “It’s got bay views – well, bay glimpses from the front porch. However, there are 180-degree bay views from the roof. We ended up getting that property for a bargain price. We put in a low offer which was beaten by another buyer, but their finance fell through. We’ve only held it for around two years, but it’s gone up heaps in value already.”
Brad believes that there’s still plenty of growth to come. “Prices are so high in the rest of Port Phillip Bay, yet you go to Frankston and they’re still only $300,000. There’s definitely a lot of potential there – to the point where coach tours of Frankston are being run for interstate investors now!”
Around the same time, Brad and Jarrod also put a deposit down on an off-the-plan property in Brookvale, in Sydney’s northern beaches district, 10km north-east of the CBD.
“We wanted to diversify what we were buying,” explains Brad.
“Properties in different states go up at different times, so if you just buy in one area, you’re putting all your eggs in one basket. Whereas, if you’re investing in more than one state or territory, Sydney might be booming at the time Melbourne is going down. That means you can always keep active.”
The Brookvale property – on which Brad and Jarrod are due to settle in August this year –ticks all of Brad’s location boxes. “Brookvale’s a little bit of a dive at the moment, but it’s near the beaches – Curl Curl beach is the closest,” he says. “It’s also 500 metres from Warringah Mall, and there are football stadiums within walking distance. The bus stops in front of the block too, which takes you straight into the city.”
While it’s listed as a one-bedroom apartment, it’s also got a twist: it’s got a study/loft which potentially could be used as a small second bedroom.
Brad’s property journey hasn’t all been plain sailing, however. Since moving to Mornington in 2007, his main personal project has been to transform the run-down property he bought as his and Kelly’s dream home.
“Our friends and family thought we were mad. We went from having the best house in the street to buying a disgusting, run-down house 300 metres from the beach in a nice area of Mornington,” says Brad. “We’ve now turned that crappy $385,000 house into our dream home.”
The couple started most of the work on the property after buying their investment properties in 2009; however, Brad’s self-employed status brought with it its own problems, thanks to the global financial crisis.
“We’d always used finance brokers, but I don’t think even they knew what was going on,” says Brad. “They were saying, ‘yes, we can get you the money you need’, but the banks were tightening up, and would just turn around and say no. We ended up going direct to a bank, which was the worst thing we ever did.”
Brad was looking to borrow an extra $150,000 in order to carry out major renovations to their Mornington home. These included building a second storey new master bedroom, living area and balcony, an enlarged downstairs family room, a brand new kitchen, enlarged children’s bedrooms, a new backyard alfresco area with new deck, and all-new external finishes.
Bank staff indicated to him and Kelly that they were well within their borrowing limits.
“We had $50,000 in cash to start with – I started ripping down brickwork and digging the footings. It was then that the bank turned around and said no.”
The couple went to another lender, but the fact that work had already started on renovating their property caused more problems. Because Brad had already gutted the property, the second bank’s valuation was significantly lower. Desperate now, Brad decided to sell one of the Frankston units he had bought back in 2007.
“We put that on the market to get some cash – we walked away with $100,000, which ended up being $50,000 after splitting the profits with Jarrod,” he says. “However, that also brought its own problems. That unit acted as the security for a $50,000 line of credit, which we used as a buffer for the three properties. When we sold the unit our line of credit disappeared. At that time we didn’t know what was going on – we were looking at our bank details and the money was just gone!”
The loss of the line of credit was a massive blow – and halved the cash Brad and Kelly had available to do their reno. When they went back to the bank to try and re-establish their line of credit, they were told a firm no.
“That was a big problem – effectively, we ended up selling one of our units for nothing. True, the $25,000 we got was a big help, but that got sucked up pretty quickly. While we didn’t lose any money selling, I would have preferred to have kept it for what we did get.”
Since then, it’s been a hard slog to complete the Mornington renovations, basically relying on day-to-day cash flow. However, the five-bedroom property is now finished, and is worth a very healthy sum of $850,000.
Onwards and upwards
Indeed, Brad’s champing at the bit to get his investments back on track. The Sydney property is likely to bring the couple a decent chunk of equity, seeing as the estimated value is $65,000 higher than the 2009 purchase price.
“I’m in the process of refinancing and planning on purchasing another property in Sydney or Brisbane,” says Brad. “This will probably be on our own, and not with Jarrod. While the last couple of years have been hard, it should be easier now as the banks are loosening up. Kelly’s also recently returned to work, so that should help, too.”
Brad’s leaning towards Brisbane as his investment location of choice.
“I think there’s a lot of potential in Brisbane,” he adds. “I was looking in Brisbane a couple of years ago, at the peak of the market, but it’s dropped since then – I think I’ll probably be buying in Brisbane next.”
He’s got plans to extend the Cape Woolamai property before the end of the year. “The Cape Woolamai property is a split level house and there’s a carport underneath it. I want to build a carport off to the side of the property and then put a games room and master bedroom underneath,” he says.
Brad thinks it should be a relatively inexpensive exercise – around $15,000 in total –and will add $70,000–80,000 to the value of the property – as well as increasing the rental even further.
He also has plans for the Frankston house – and they’re more extensive. “I’m looking to build two townhouses on the Frankston South property,” continues Brad. “I need to get my builder’s licence first, and get approval; however, the draftsman who drew up the plans for Mornington doesn’t think there will be any problems at all.”
Brad’s planning to work towards his builder’s licence in 2012, with an eye to starting construction when development begins on the Frankston marina. There’s also scope to take advantage of the bay views by putting in a sky deck.
“You’d have to weigh up if the area’s ready for it. If you overcapitalise, you won’t necessarily get the return, and it’ll cost you an easy $50,000 to put a sky deck up,” comments Brad. “However, the whole suburb’s changing, and if they build the marina, I’ll definitely do it.”
One of the most important things that an investor can have is the confidence to go for it, adds Brad. “After we bought the two Frankston units, I was too scared to buy any more properties for ages,” says Brad. “I didn’t know enough about the finances, and I didn’t know any investors I could talk to – I didn’t really talk to my mates about property investment, even when I bought a property.
“So, I started reading Your Investment Property magazine, I bought books, and I joined a mentoring scheme with Positive Real Estate. Going to workshops and coffee clubs, and being able to speak to other active investors, gave me the confidence to move forwards. If it wasn’t for that, we wouldn’t have bought the last few properties and we wouldn’t be where we are now.”
Brad’s property selection criteria is simple: hit the beach.
“Personally, I’ve always liked living close to water and being able to just walk to the beach – and I’m not the only one! People like being close to the water, which means demand is usually high; with rising population numbers, that demand is only going to increase,” says Brad. “Plus, there’s only a limited amount of land near water – you can’t expand out as you can in suburbs, meaning land values keep increasing.”
He’s confident that this will see the values of his Victorian properties remain robust, even in the face of a slowdown.
“With Melbourne’s house prices starting to decline, my investments should remain strong – especially with the Baby Boomers wanting a sea change retirement,” he adds. “I’ve spoken to agents in the area and they are getting a huge interest from Baby Boomers wanting to sell their million-dollar inner city houses and retire down to the Mornington Peninsula.”