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API JANUARY 2014
JANUARY 2014 API
$200,000+ IN SIX MONTHS
Published: July 2013
¿ HOW ARE THINGS?
QCongratulations on your success so far!
I’m wondering how your properties in
Port Hedland are going and whether or not
you regret buying there? Would you buy in
a mining town again or do you think it’s now
AYour question is very timely, given
the recent negative tone surrounding
Port Hedland, South Hedland and the
Pilbara are very unique markets that have
proven extremely lucrative for investors
over the past 10 years or so, with average
capital growth of 20 per cent per annum.
Within that decade period of exceptional
growth, there have been lulls when new
unit or housing stock outweighs rental
demand and, in turn, demand from
investors chasing attractive yields of 12
per cent or more.
However, like any market, rental and
buyer demand soon catches up to unit
and house stock levels.
This sort of situation happens in all
markets obviously – it’s just that it tends
to be a much shorter cycle in the Pilbara.
Sometimes the up and down happens in
the space of only months.
Currently the Pilbara is experiencing
a slight oversupply of stock as a lot of
developers’ new products have hit the
market, coupled with the government
creating an estate of 100 transportable
houses to cater to local service workers,
such as local schoolteachers.
The current oversupply started perhaps
six to nine months ago, with rents
dropping approximately 30 per cent. Some
naysayers jumped on the negativity.
In my view, rental yields had gone as
high as 15 per cent, so the market was
due for a little correction.
However, we’re still talking about
rental yields of 10 per cent. Few could
disagree that it’s a very good yield for any
We’re also talking record iron ore export
levels from BHP and the other big players
at the moment, as well as a current
iron ore price above $130 per tonne.
Historically, that’s a very strong price.
Population growth forecasts for the next
15 years for the Pilbara still far outweigh
available housing and land, and the
current oversupply will balance before
going into undersupply again.
This scenario will occur very soon, I feel.
Like in any market, older stock is
currently harder to rent, with new stock
still being tenanted pretty fast.
Personally, I’m still confident in this
market – so much so that I’m currently
building a new six-bedroom house at the
rear of one of my existing properties that
The existing house on that property is
six bedrooms and previously received
$3000 per week rent. It now receives the
lower price of $2200 per week. It sounds
like a big drop, but that’s still more than
$1200 per week in positive cash flow in
my pocket each week.
The new house will fetch approximately
$2500 per week in rent. My positive cash
flow from this particular property – in an
apparent ‘down market’ – will then be
$3000 per week. That equates to about
$150,000 per annum. That’s not even
mentioning the more than $500,000 in
equity that’ll be sitting in the investment.
I did go through a period during 2013
of vacancy, as there were no tenants
because the market hit oversupply.
I elected to use that time to renovate and
tidy up the properties rather than panic. I
was also fortunate that I’d created a buffer
of cash from the $100,000 per annum
I’d been receiving from my properties
in the Pilbara to cover me for any down
periods. Being prepared for a rainy day
When my other investment properties in
capital cities and other non-mining major
regional areas were showing no capital
growth over the past few years, the
Pilbara ones gave me significant weekly
cash flow and generous natural and
manufactured capital growth.
As my Pilbara properties went
through the lull I’ve described recently,
my metropolitan properties started
experiencing capital growth and
increasing rents once again.
It’s all about balance, and that’s what
Published: November 2013
¿ YOUR DAY JOB
QWhere does your salary come from?
How do you manage to hold down a job
while travelling around the country doing
AI’ve been in different financial
positions throughout recent years. I
was on a modest $35,000 salary while I
owned my business.
After selling that business, I’ve had a
few part-time and contract jobs along the
way. I work part-time at the moment and
also coach tennis.
My property purchase price range is
fairly low so serviceability doesn’t really
pose a problem for the most part.
Not all of my renovations occurred at a
point where I was actually employed in a
full-time job, however when it was I’d take
annual leave and, at times, unpaid leave
to get the projects done.
Fortunately, my job at the time had
a degree of flexibility that worked well
These days, managing such projects
does require a big chunk of my time.
That’ll also be the case when I begin my
Do you have a question for an investor
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Investors who have been featured in API answer questions from readers
æI did go through a period in 2013 of no
tenants as the market hit oversupply. I
elected to use that time to renovate and tidy
up the properties rather than panic.Æ
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