High school dropout turned real estate investor Sam Gordon owns so many properties he often needs a minute or two to remember exactly where they are.
At 31, the Southern Highlands native owns an impressive 26 properties spread across four capitals, including Brisbane, Perth, Adelaide and Greater Sydney.
His properties have a combined value of about $9.5 million and generate nearly $540,000 a year in gross rental income – about $200,000 of which he pockets after paying his mortgage bills and other holding costs.
Banks own $5.5 million of his investments, with Mr Gordon revealing he holds about $4 million in equity.
It’s a financial position that’s all the more incredible when considering he purchased his first property as a teenager earning about $35,000 a year from a job at his family farm in NSW’s Southern Highlands.
He had been working since the age of 16 after dropping out of school midway through year 11.
“I was essentially a labourer,” Mr Gordon said. “It wasn’t a high income.”
He used savings from the job to purchase his first property in 2009: a two-bedroom unit in Wollongong for $275,000.
“There wasn’t a huge strategy to it,” he said. “It was just a unit for myself to live in, which I could renovate. I got a good price.”
The renovation, much of which he did himself, helped increase the value of the unit and by 2012 he held a sizeable amount of equity.
It was at this point that he began to get more serious about his investing and started fine tuning his purchasing strategy.
“I did lots of reading,” he said. “The strategy was to buy under market value and have the chance to manufacture equity or cash flow.”
This meant looking for properties similar to his Wollongong unit – homes priced below comparable properties and offering scope for improvement through a renovation.
The rents also needed to be high relative to the purchase price so that the mortgage repayments did not eat up his income.
“There will always be people who need to sell in a hurry and for whatever reason will accept a lower price if it means they can get the property off their hands quickly … if you have good relationships with agents you can find them.”
With this strategy in mind, his next property was a block in the Southern Highlands town Moss Vale, which he purchased for about $135,000 and improved with a renovation.
He used about $22,000 of the equity in his Wollongong property (by refinancing the loan) to fund the deposit.
“I had manufactured equity in my unit so the banks were happy to lend,” Mr Gordon said.
“I got the (Moss Vale) block at a great price. At the time the Sydney market was not moving and there were a lot of stale listings so I negotiated on heaps of stuff … I went into the deal already having a margin and added value.”
“Most inexperienced buyers rush their decisions. They push really hard and go all out without doing their due diligence. Often they paid too much because they didn’t understand what the property was worth.”
Mr Gordon said overpaying was common in instances where the buyers had originally been searching in a more expensive market and, after being outpriced, moved to a new location.
“They pay the same prices, not realising how much cheaper the next market is,” he said.
Mr Gordon added that agents tended to employ a common bluff by claiming they had received additional offers on properties when there were none.
“It could be a ghost contract,” he said. “Be careful what you offer. Make sure it is based on comparable sales, not what the agent wants.
“You have to stick to your guns. If you put the offer in writing then the agent, under law, has to submit it. That’s often forgotten.”
Mr Gordon also attributed his successes to being prepared to invest interstate. Many of his best buys were in Adelaide – a market often overlooked by investors on the eastern seaboard. These markets have since become a lot more popular and the rises in local prices have given him even more equity.
SAM GORDON’S INVESTMENT STRATEGY
-Buy properties with high rents relative to the mortgage costs to keep cash flow high and out of pocket expenses low
-Buy “under market value” to have equity from the beginning
-Consider properties where there is scope to add value so that you can “manufacture” equity
-Use each purchase to leverage into the next by refinancing and drawing out the “manufactured” equity as a deposit
-Only use 20 per cent deposits to ensure banks will issue the loan. It also gives more of a safety net for any interest rates rises
-Approach second and third tier lenders, who generally have a higher risk appetite and are more likely to issue loans when you already have other commitments
-Buy interstate: Mr Gordon purchases all his properties in or around capital cities and spreads his purchases across multiple states