HOW WOULD NATHAN BIRCH START INVESTING TODAY?
With a property portfolio that exceeds 200 properties, and a passive income of around half a million, Nathan Birch is one of Australia’s leading property investors.
He’s inspired countless young investors to model themselves on his success. And judging by all the recent media success stories, it’s been working!
While the current market is different to when Nathan started out 14 years ago, there are still many opportunities out there for successful property investing.
YES, THE MARKET HAS CHANGED
A lot of people think Nathan was lucky. That he was in the right place, at the right time.
The fact is that he had to work hard to make sure he was able to act on opportunities.
When Nathan started investing, the Sydney market had just started to go backwards. Nathan found himself buying properties for just $200,000 which had previously sold for $300,000. Sounds like a buyer’s paradise! Wrong.
Interest rates were then much higher then. Even though properties were ‘cheap’, holding onto them was very expensive.
Nathan was paying up to 9 per cent interest on finance. Today, rates are about half of that amount, averaging 4 to 4.5 per cent.
Nathan was forced to find strategies to balance his cash flow, often at the expense of long-term capital growth.
THE RENTAL MARKET
Nathan says, rental yields were around 4 to 5 per cent in the Sydney market when he started investing. Much lower than the interest repayments.
Cash flow was a massive issue for Nathan when he started out, which is why he focused so much on high cash flow deals back then.
Additionally, Sydney was also in the midst of a rental oversupply problem. According to Nathan, it would often take months to rent out a property because there were so many for tenants to choose from.
Today, over 200 people have been reported at a single rental inspection in Sydney. Today, rental cash flow is more stable.
LENDING HAS CHANGED
The one thing Nathan did have on his side back then was finance. Nathan admits that “There are a lot more challenges” now.
Before APRA introduced stricter lending guidelines in late 2015, it was possible to get 90 to 95 per cent loans without the penalty of mortgage insurance. In some cases, a 100 per cent lend was even available.
Lending is now more tightly restricted for property investing. Lenders want to see 20 deposits and loan to value ratios below 80 per cent. Banks are also being very conservative with their valuations, meaning it takes longer to withdraw equity.
Even though investors actual cash flow is probably better now, banks are refusing to acknowledge this. Most lenders reduce a loan applicant’s income from sources such as rent, while also assessing existing debt at a higher interest rate than is actually being paid.
“It is a very different market to when I first started buying,” says Nathan, “But, the results can still be achieved.”
THERE IS NO ‘ONE SIZE FITS ALL’ APPROACH TO PROPERTY INVESTING
“Everyone’s position is vastly different,” says Nathan.
Each investor begins with their own unique set of goals, circumstances and starting position.
In other words, just doing what Nathan did some 14 years ago is not a sure recipe for success. Instead, it is essential to adapt your own position and goals to what can be achieved in the market you are currently buying in.
WHAT WOULD NATHAN DO TODAY?
One of the reasons Nathan has become so successful in property investing is that he adapts to change.
He follows different markets diligently, and draws up the best strategies that will enable him to achieve his end-goal.
Once he achieves this, he continues to follow the market in order to achieve his next feat.
He continuously evolves his strategy while setting bigger and better goals for himself.
But, if he started again, he would still make sure his foundations were laid correctly.
“Everybody needs to have the right foundations when it comes to building a sustainable property portfolio,” he says.
He says a good foundation would be between 5 and 20 bread and butter properties (depending on the individual’s circumstances and goals) within a price range of $200,000 to $300,000.
If he was starting out in the same position he held 14 years ago, relative to inflation, he says he would be looking at the Queensland markets of the Gold Coast and Brisbane.
He would also buy some properties in the blue-collar regions of Sydney, such as the Western suburbs and the Central Coast.
Another tactic he would consider, would be to invest in development projects in Sydney. This would allow him to build a nice chunk of capital, and help overcome some of the finance restrictions faced in the current market. He would then redeploy this back into acquiring more foundation properties for his portfolio.
WHAT HE WOULDN’T DO AGAIN
Nathan says he wouldn’t buy cheap regional properties this time around.
Although Nathan needed these regional cash cows to balance his cash flow when interest rates were rising rapidly, “There comes a time when you outgrow your portfolio,” he explains.
Properties such as these then come at an “opportunity cost” – meaning those funds could have initially been deployed to buy something more worthwhile in the long run.
He says, he also wouldn’t be so hands on with renovations as he was in the past.
In fact, he says that instead of buying blue-chip properties and renovating them, in today’s market it would make more sense to buy land and build on it.
BUYING IN LINE WITH GOALS
One thing that Nathan wouldn’t change in his investing, is to buy according to his position and strategy. In order to create a property portfolio with the right balance of cash flow and capital growth, it is essential to buy the right properties at the right time.
He says, he would continue to follow the three principles he set out at the beginning of his journey: buy under market value, with a good upside for growth and with a strong cash flow.
BEWARE OF COPYCATS
While Nathan has inspired many Australians to look at property investing differently, there has also been some copycats popping up.
Be wary of anyone who says you can reach success by following one set-out strategy – even if it worked for them. Investing is always a case by case scenario.
The thing that makes Binvested stand out from the crowd, is our individualised approach. Binvested was created by investors for investors, in order to provide a community based approach to help other Australians become successful.
We help other investors by looking at their situation and helping them devise the best strategy for reaching their goals – whatever they might be.
NATHAN’S TIPS FOR BUILDING A PORTFOLIO IN TODAY’S MARKET
• It is important to have a good balance in your portfolio. Equity can help fund your next deposit, cash flow can help you service your loans and good growth can help you carry out your exit strategy.
• Every state poses its opportunities – as does every market.
• Developing strategy and understanding goals are keys to success.
• Knowing the type of properties you should acquire at each stage of your investing will help you get there sooner.
• It is important to understand financing and how it will affect you.
• Having the right team can prevent you from making the wrong choices and keep you on the right path.
• “You need to move with the times, you need to grow with the markets.”
• Don’t sit on the side-line because “Sitting on the side-line will hurt you financially.”