Mitchell Shad is 22 and has just bought his second investment property. His goal: to own 10 properties by the time he turns 30. “I’m young so I’ve got a long-term plan. It’s all about wealth creation.”
The Sydney mortgage broker bought his first investment property – a $650,000 townhouse in Riverwood – with his sister in May last year and hasn’t looked back
“I work in the mortgage industry, so property is pretty hard to ignore. It’s something tangible. It won’t burst and it won’t lose its value overnight. Shares tend to go up and down,” he tells AFR Weekend.
He believes the Reserve Bank’s fears about property investors overheating the market are largely unfounded because the right lending measures are already in place.
“The RBA is being a bit too cautious. Investing is only a problem if you do it the wrong way; if you’re geared up to the hilt, don’t know the value of your property and prices fall. Then you could end up owing 100 per cent or more of the value of your investment”
His advice: be conservative, think outside the box and buy at the cheaper end of the market. “You need to look at what you can afford, not how much the bank says you can borrow. Don’t overextend yourself.”
With Sydney property prices rising about 16 per cent over the past year, Shad did better than expected out of his Riverwood townhouse and was able to use the equity accrued to buy a $250,000 property in Townsville in June. He plans to buy again next year and is looking at Brisbane.
He picked Townsville because of its good capital growth potential. “It has a university, army base, good schools and plenty of infrastructure development.
“I’ve done well out of my Sydney property, but I think the market has peaked. When it eventually flattens out, I’ll look at it again.”
Both his properties are negatively geared.
He earns about $300 a week in rent from the Riverwood property and $295 a week from his Townsville tenants. This gives him gross yields of 4.8 per cent and 6.1 per cent respectively: “I get a lot back in tax, so in a way it’s forced savings. The rent I receive goes into a separate lender account so I don’t miss any interest payments.”
Before joining Neutral Bay mortgage brokers Smartmove, Shad worked at the Commonwealth Bank, where he has both his loans. His first loan was a split fixed-variable mortgage. The fixed portion acts as a hedge against future rate rises, while the variable component allows for extra repayments.
“If I get paid a bonus, I can put that into my home loan. I also have an offset account, which reduces my home loan balance and my monthly interest payments,” he says.
He bought his second property with a variable investment loan. In both cases he borrowed 90 per cent of the value, but only had to pay lenders’ mortgage insurance (LMI) on the second investment property.
“When I bought my first investment property, the bank offered a staff deal, which waived LMI,” he says.
Shad continues to rent, flat-sharing with a mate in Cammeray. He budgets carefully each month to meet his commitments with something left over to eat out with his friends. But these are small sacrifices and Shad appears well on his way to becoming a property mogul.
“My friends are all very surprised I am able to do this at my age. The hardest thing was to accumulate my first deposit – my father helped me out – but it just rolled on from there,” he says.
Original article on: The Australian Financial Review