STEP NUMBER SEVEN
BACK TO THE MINING TOWNS
Australia’s most prominent mining company is without doubt BHP.Or as it’s known nowadays BHP Billiton. A huge part of the daily trading on the ASX [ Australian Stock Exchange ] focuses on BHP, and because we were in the middle of an incredible minerals boom it was natural for me to start researching Broken Hill, where rents were high and houses very cheap compared to capital cities. Where is Broken Hill ? It is located on the Western border of the state of New South Wales, and strangely. uses the same time zone as South Australia’s capital, Adelaide. It is much closer to Adelaide than to Sydney.
WHAT’S THIS EQUITY STUFF ?
As predicted by Joe the agent who did the deal on the Elanora unit, it had leapt ahead in value quite rapidly – what does a property investor treasure above all ? An increase in equity ! Followed by caring tenants who pay their rent regularly, of course. Equity is there to be used at every opportunity, not wasted on depreciating goods. [ Notice I didn't say depreciating assets ? ] In very few months, according to local real estate agents who were keen for me to sell, this 2 bedroom unit had soared in value by $55 000. My mentor always insisted EQUITY is there to be used.
MORE RESEARCH NEEDED
By now, after a couple of years, my computer skills had improved a bit and there was the fabulous tool for property investors called www.realestate.com, so it was head down and into research mode again. Broken Hill was a ” hot spot ” at that time and houses were being sold almost as fast as they were being listed. What to do ? After having two deals fall over by faster acting buyers, I tried the technique of speaking to all the agents in town, and eventually settling on the Elders R/E person, Sarah. I persuaded her I was very serious about Broken Hill, had my finances organised, and to call me the moment a really nice house was listed. Good choice of technique ! Sarah was approached by a couple who had lived there for 50 years, were moving interstate, and had renovated a very cute 3 bedroom house complete with a separate spa room, an asset in Broken Hill’s very hot summers. It looked to be an ideal house for a property investor. No chance of making any offers below the asking price due to lots of investors being ready to pounce, so when Sarah
called, I acted.
PRIOR ACTION
Actually there had been lots of action between David the broker, the CBA, and me. We 
asked the CBA to revalue Mt Isa, Geraldton, and Elanora, and the results of the valuations blew me away. HEAPS of EQUITY ! Valuations by banks are what I call REAL valuations and not opinions by agents who may sometimes inflate the value. Obviously, I need some privacy as far as my finances are concerned, so won’t publish all my figures for you, but I’m happy to say I was able, through the use of equity, to purchase the house in Gaffney Lane, Broken Hill without taking any money from my own pocket, except for the phone and internet costs. How COOL is that ? The equity even paid for the legal costs.
Part of my prior action regarding tenants and the correct rent are covered in detail in the TENANT TIME paragraph below………….
ACTION – NOW !
As part of what had become a smoothly oiled routine, my first non-financial task was to organise an inspection for the quality / condition of the building, and the same for the pests such as termites. All trades people who do inspection work are licenced and are obliged to provide written reports on their findings. As I mentioned earlier, property managers have a group of regular tradesmen they use,and it was from these people I found a liceced building inspector who lived locally to do the job. In country areas my preference is to find local people to do these things, because I had occasion six months previously when I was researching a VERY cashflow positive house in Blackwater and at the inspection phase, had to import an inspector all the way from Rockhampton – only 200 kilometres away. The travel cost was the same as the inspection cost, so I paid double the usual rate ! Do you follow why I like local inspectors ? In brief, all was 100% OK and it was time for finding a tenant to help the process along. By the fourth purchase I had settled into a comfortable routine which has worked well, so far.
TENANT TIME.
During discussions with the selling real estate agent, she advised that their agency didn’t handle rentals and referred me to another agency in town. I had been pouring over ” Houses For Rent ” to establish the correct rent for Broken Hill houses for some time, and had a very good idea of a fair rate. When this agency underquoted my expectation by a huge amount, ” BINGO ” my brain told me to try another agency, which was a great move. I’ve been friends for many years with the owner of the local LJH office [ Thankyou Mr Hooker ] who manage the Elanora unit, and he suggested the
Broken Hill LJH office where he knew the principal well. Excellent suggestion, as they had a mining engineer desperate to rent, and he moved in at $ 270 per week within a day of settlement. All seemed to be looking really perfect for a while, with rent EASILY covering the 7.1 % fixed rate mortgage, rates, water charges, and insurance. However, MURPHY struck again – just like early days in Geraldton, I had to play ” The Tenants From Hell Blues “ My whole life has been involved with jazz music, so I often express myself through the blues medium.
THE TENANT FROM HELL BLUES – PART TWO.
Within days of the engineer moving in, the original gas heater went to heaven, and had to be replaced. Hours on the internet produced the best priced one [ $825 ] surprisingly, at the Broken Hill plumbing supply business. The local gas fitter was able to collect and install it in one day, which made the engineer happy as it was in the middle of winter. Not happy enough it seems, as he up and disappeared after two months, for an overseas job, and we never heard from him again. In the meantime, the lovely ladies at LJH found another tenant who moved in at a slightly reduced rate six weeks after the disappearing engineer. My mortgage repayments were covered during that six weeks, partly by return of the bond, and the very tenacious LJH ladies who contacted the engineer’s sister who lived nearby. She had him send the appropriate shortfall $$$$ s and all ended sort of happily. LJH have a system of managing properties better than most, and keep records of all defaulting tenants, so I doubt if the engineer will be able to rent via them again.
Would you like him as a tenant ?
CONCLUSION
Even though there have been some ” MURPHIES ” along the way, it’s my opinion that real estate / property investing can cause a few headaches, but they are minor, in my experience, compared to the benefits of capital gain and during our current low interest rates, some income. My original investment has multiplied by a factor of 8 over 6 years………. and it’s still growing.
As this is my seventh step to prosperity, I think it appropriate to introduce this great song. SEVEN STEPS TO HEAVEN by Miles Davis. I have to indulge the jazz musician within, so here is a link to Miles and his quintet on YouTube. I really love the song which we play with our quartet and especially the maestro’s swinging version.
http://www.youtube.com/watch?v=0CCgdpEckFQ
Below are 2 views of a Steinway Concert Grand Piano. DELICIOUS !
Click on the Steinway
Click on this Steinway
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