I Wish I Knew This Before Buying A House...

I wish I had known these things before I bought my first piece of real estate about nine years ago.

In this article, I want to share some of the key lessons I've learned over the last nine or ten years. After helping hundreds of people through the buyers agency, I now know a thing or two that I wish I had known back then.

So, if you're interested in my thoughts, definitely keep reading.

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The Importance of Capital Growth Over Cash Flow

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One of the key lessons I learned when starting out—and yes, hindsight is a beautiful thing—is that mortgage interest rates were closer to 7% or 8%, similar to where they are now, if not a little higher at that point.

What I was told back then, and what really drove me into real estate, was that if you start buying properties when you're 20 and accumulate 10 properties over the next 10 years, by the time you're 30, you’d have 10 properties.

You could then use the equity from five of the properties to pay off the other five, effectively becoming debt-free. And cash flow was seen as very important.

That's what I focused on back then, so all I was looking for were properties that would give me positive cash flow. It was tough because the 7% mortgage rate was quite high.

Of course, interest rates did fall a year or two after that, but at the time, I was solely focused on cash flow.

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Learning #1: Why Focusing Solely on Cash Flow is a Mistake

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While cash flow is an important part of any portfolio, it’s not actually the best way to use real estate.

Let Me Explain:

If I buy one property at $500,000 and it returns me, say, $2,500 or $3,000 a year in positive cash flow, it sounds like an amazing deal. And it is, because I'm not using any of my money to hold that property, so all the appreciation should come from the fact that I’m not putting any more money into that property after I’ve purchased it.

However, where people make mistakes—and I got lucky in avoiding this—is in thinking that good cash flow alone is enough. I happened to find a property that was not only giving me good cash flow but was also in a high-growth area. This allowed me to realise significant capital gains over the next couple of years.

This brings us to today, where many people make the mistake of thinking, "If it’s not good cash flow, I don’t want to buy it."

However, even if you did get good cash flow, that’s still not the best way to use real estate. You want capital growth.

I’ve mentioned this in my blogs and numerous YouTube videos, where people think I’m some regional fanboy who only cares about cash flow. But no, you definitely need capital growth.

Cash flow allows you to stay in the game and accumulate more properties, but capital growth is what gets you out of the game and into financial freedom—what we all want.

If we had that $500,000 property and I earned $2,000 to $3,000 a year after all expenses, that’s fantastic. Happy days.

But am I going to be able to retire on $3,000? Well, no, definitely not.

I mean…it would buy me a lot of KFC, especially if I were living in Thailand or somewhere cheaper, but that’s not the point of this article.

The point is that if that $500,000 property grew by 5% every year and compounded annually, I’d be making anywhere between $25,000 and $50,000 every year, depending on how much that growth actually was.

Now, that is a lot better than the $2,000 to $3,000 I’d earn in cash flow. What’s even better is that the $2,000 to $3,000 I actually earn in cash flow is going to be taxed, whereas the capital growth and equity are not taxed until you sell.

So, imagine having two or three properties like this in your portfolio. That machine keeps churning out gains. Yes, cash flow is important because, without it, you can’t buy more properties. But the capital growth will appreciate to a point where you’re making more from that than you do from your active income.

Of course, you need cash flow to live day-to-day, but that’s why buying in the right locations—where you’ve got strong rental growth and strong drivers for overall growth—will position you perfectly to realise extra cash flow as your rents increase over the years.

For context, that first property was renting out for about $250 a week. Now, fast forward nine years, and it’s renting for about $430 to $450 a week.

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Learning #2: Looking at Locations Outside of Your Backyard

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Unfortunately for me, I was in circles where I could learn from others, and the information I was digesting was telling me not to look in my own backyard.

For context, I used to live in the inner city of Sydney, where it was very expensive to buy a house—almost impossible for me to afford something. Yet, I could go regional and purchase something for around $200,000 to $300,000 and get a brick home. Happy days, because I thought that was how I was going to achieve financial freedom. I could go and buy the 10 properties I needed.

However, if I had only bought in Sydney, I wouldn’t have been able to multiply my portfolio.

If I had any issues or volatility come into my life, I could sell one property but still keep another, so I was still building out that portfolio.

Now, I was one of the fortunate few who actually took the risk and said, "Yeah, why not? I’ll look outside of my backyard."

However, many people still think that buying property is something they need to touch, feel, and see, as it makes them feel warm and fuzzy.

In fact, I had a property in Sydney where I lived just half an hour away, and I never saw it. When I tell people that, they ask, "How? Why wouldn’t you go and see it? Why wouldn’t you go and touch the walls?"

At the end of the day, what am I going to get out of going and touching a brick wall or seeing that the property is there?

I’ve put in about 10% of my money, so I’m taking on some risk, right?

However, the bank has put in 90%, and they’ve sent a valuer to check out the property. I have someone living in the property, paying me rent. I have a property manager taking care of it and providing me with reports on how the property looks. So, what am I going to do by sitting there and saying, "Oh yeah, this looks nice"? Who cares?

At the end of the day, for me, treating property investing as a business is the way to move forward and build speed.

I still speak to people today who say, "Well, I only want to buy somewhere in these locations because I want to be able to go there personally and see it."

Quite often, those are the people who get left behind, because how much more can you buy in that one location where you can actually go and physically see it?

Trust me, you’ll probably only see it once every two to three years, which you can do anyway if you just flew over to wherever you needed to go, and then you can go and touch the walls.

When you start looking at locations outside of your backyard, it opens up so many more opportunities.

If you’re suddenly going from 30 markets to 150 markets, yes, you’re going to find ones that have better metrics in both the short term and the long term, allowing you to get the capital upside.

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Learning #3: The Value of Leveraging Buyers Agents and Mortgage Brokers

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You may have just heard about buyers' agents based on what you’ve seen on my blogs and YouTube channel, as it’s become more popular.

However, back then, there were definitely not enough buyers' agents. I can’t even remember any at that time, and it was definitely a new concept.

If I had known about buyers' agents, I could have leveraged their experience to look into different areas. By combining these factors—looking outside my backyard, not having to travel there myself, and leveraging their expertise rather than doing all the data research myself—I could have made more informed decisions.

The truth is, I only got to this position because, with the first couple of properties, I really just got lucky.

It's important to recognize that. You could have bought something in 2021 and hoped for the best, and it might have worked out. That could have just been luck.

If you honestly say it was luck, how do you think that luck will play out if you had to try and repeat it?

If someone asked me what I was looking for, and I look at those metrics today, I probably wouldn’t even buy my first property.

However, I just got lucky on that one.

This is the main point. If I’m spending $200,000, $300,000, or now $400,000 or $500,000, I would want to leverage the expertise around it to make a better investment.

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Speaking of expertise, I also didn’t know mortgage brokers existed back then.

Yes, I had an idea that someone could come to you and walk you through different options, but I just thought they were just someone at the bank who could give me all the information from one bank.

However, I didn’t even understand that there were tiers to banking. There were the big four banks and then a bunch of others that could offer more choices.

If I had known this earlier, there were times when I was told "no" by one bank, and I could have gone somewhere else.

Not knowing that information really held me back from growing my portfolio even bigger.

The main thing is we don’t want people making mistakes by buying the wrong properties. Being fully educated before taking the next step is crucial.

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Learning #4: Beware of Following the Media Hype on “Hot” Suburbs

What I was looking at were property magazines (yes, what a nerd, what a loser—haha!).

I used to sit there and say, "Okay, these are the top 100 suburbs."

Then, I would look at all the data and think, "Yes, these are the places I’m going to focus on."

The next thing I’d do is hop onto realestate.com and find everything available in those suburbs.

However, that was where I learned my lesson. If the media is covering it now, it’s probably too late.

What you’re starting to see is that many of the best places to buy are in areas like Western Australia, where we purchased a lot of property about 18 to 24 months ago—just before we started seeing price appreciation.

This is the whole idea behind involving experts because, I can tell you now, we hardly buy anything in Western Australia. We’re looking elsewhere, and there are so many good opportunities out there that instead of just focusing on the short term, you need to think about positioning yourself for what comes next.

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That can often be quite scary because it’s easier to buy when things are going up. You think, "Hey, property prices went up 10% here, let’s go there."

Versus…

If you’re considering an area that hasn’t done much for 2 or 3 years, but there’s information suggesting something is happening there, you might think, "There’s more risk."

The risk-to-reward ratio is:

• What you can actually do in real estate investing; and
• How you can grow it.

Why? If you do what the majority do, you’ll end up with one or two properties and might be happy with that. However, that isn’t going to get you to financial freedom. You need to do what the top 1% are willing to do.

So if you’re sitting there,

Watching TV,

Waiting for these “hot spot” opportunities, thinking:

“Someone’s going to mention it in a YouTube video.”

“Someone’s going to email me saying this is the best place to buy,”

Chances are, it’s already done. There are thousands of other people already there, and you’re just buying the leftovers. Chances are, you might end up with a dud property at the wrong price. Real estate is all about buying well.

So, buy before the hype,

Sell into the hype.

That’s pretty much how you want to do it.

If you’re a long-term holder, you can buy well and sustainably hold it as you go, using the equity to build more positions.

I hope you guys have enjoyed this article and learned a thing or two.

I wish this information was available when I started investing.

I’ll catch you on the next one.

Thank you!

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