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September 2012

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Inside our$30 mIllIon+portfolIo

Australia’s elite investors reveal their secrets

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Profile| super investors Profile| super investors

Sam Saggers

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How I built my multi-million-dollar portfolioAt just 37, Sam Saggers has mastered property investing and is a member of the elite 1% club of property investors. His well-planned, multi-million-dollar portfolio has him on track for retirement at age 45. Now, he has begun trading property for high profits – a strategy that involves buying low and selling at market value. Tim McIntyre reports

S ydney man Sam Saggers had an enlightening experience while on his first foray into the real

estate market as a bright eyed twenty-something in the late 1990s. Wanting to take the plunge into property, he had conscientiously saved a $30,000 deposit and purchased a two-bedroom unit at Putney, in Sydney’s north-west, for $250,000.

It sounds like a good deal by today’s standards, but back then, it turned out to be a dud and Sam sold it for a $30,000 loss. He blames a beginner’s naivety for the bad purchase, realising afterwards that the growth cycle in the area had already

hit its ceiling and he had failed to negotiate well.

“I got caught up in my own emotions, fell in love with the property and just had to have it,” Sam says. “At the time of buying the property, I didn’t look at the true income and expense, I didn’t conduct research at arm’s length and I had no idea about the cash flow or growth potential. The decision to hand over my life savings of $30,000 as a deposit was entirely emotional. I soon discovered I was out of my depth.”

A straight-up loss of this magnitude might deter some fledgling investors, but it had the opposite effect on Sam, triggering a renewed passion to invest in property and to get it right in the future. Inspired by his surroundings, his network of people in real estate and the opportunity it presented for financial success, he could also now add the benefit of experience.

“These valuable lessons early on have impacted every investing decision I have made since,” he says.

Early exposureGrowing up, Sam was able to attend a private school, thanks to the work

ethic of his parents, who toiled seven days a week, including weekends at Sydney’s Paddy’s Markets, in order to give him the best chances in life. While he counted himself as lower middle class, he says his schooling gave him exposure to wealthy people, who had made money through real estate.

“I owed it to my parents to learn from the rich. They encouraged me to do so,” Sam says. “The wealthy kids and their parents influenced me to invest. They knew I was from a poorer background and would teach me and show me what they had done; they would take me to properties they had bought and talk about investment around me.”

Nowadays, Sam believes he is just hitting his straps in the property investing game. He has a personal buy and hold property portfolio worth tens of millions of dollars, spread throughout Australia and New Zealand, and has personally bought properties using strategies such as development, subdivisions, strata titling, capital growth, off-the-plan and positive cash flow.

“I believe property investing is no fluke and there are so many aspects to learn,” Sam says. “By having a high moral compass and being slow and steady, I have been able to avoid get rich quick ideas and stick to sensible, methodical and profitable buying.”

Sam describes himself as a positive and highly analytical person, and advises those embarking on their property investment journey to educate themselves, find a mentor and follow the path of people who have already invested. “We all make mistakes. I have

Sharing the spoilsSam Saggers is living his dreams through property investing and is now helping other people through a charity he is proud to support called Room to Read. Sam has helped fund three schools overseas in Nepal and Vietnam. “It is property investing, that has allowed me to give back and support people whom desperately need a hand.”


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Profile| super investors

“When buying my first property, I didn’t look at the

true income and expense, I didn’t conduct research at arm’s length and I had no idea about the cash flow or growth”

yourinvestmentpropertymag.com.au


34

Year Type/state Price/strategy Development/reno costs Sold for Gross

profit Timeframe

2011 4 houses in Wollongong, NSW

Bought ‘mortgagee in possession’ for $800,000

$100,000 $1,300,000 $400,000 120 days

2011 1 unit in South Brisbane

Bought bottom of the market for $400,000

$0 Currently holding

NA Trade in 2014

2012 12 units in Western Sydney

Strata subdivision for $2,555,000

$370,000 $3,585,000 $660,000 9 months

2012 2 blocks of land in Hunter Valley, NSW

$140,000 for ‘put and call option’

$0 $180,000 $40,000 120 days

2012 1 waterfront unit in New Farm, Brisbane

Bought bottom of the market for $280,000


NA Trade in 2014

2012 1 unit in Wellington, NZ

Bought bottom of the market for NZ$300,000


NA Trade in 2014

A year in the life

learnt you need to pick yourself up and dust yourself off. No one is born a ‘naturally successful property investor!’ You need to make mistakes, learn from them and keep powering on.”

Sam’s strategiesSam has been investing in property markets across three different decades and has gained valuable insight into the movements of various market cycles. He knows the value of spending time in the

market and suggests that investors look at potential property portfolios in two stages. “The first phase investors enter is known as acquisitions, during which you need to accumulate properties. After starting out and getting a property it becomes a little bit easier to pick the next one and then the one after that,” he explains. “If you have less than six properties right now, you are in the acquisition phase of your investment journey.”

Profile| super investors

“Until you own six buy and hold properties, I would suggest you are not ready for trickier deals, such as subdivisions

or developments”

The acquisition phaseAccording to Sam, the first step involves creating an ‘acquisition plan’. When starting out, Sam’s acquisition plan focused on acquiring one property per year, with the aim of joining the 1% club and having more than six properties. He believes this should be the first goal of any investor.

“The point of having six properties or more is that you pay little to zero tax and your portfolio is diverse and well exposed for growth,” Sam says, adding that the phase might take five, or even 10 years. “Until you own six buy and hold properties, I would suggest you are not ready for trickier deals, such as subdivisions or developments. In general, you would not yet have the mindset to tackle more complicated opportunities.”

New Farm

apartment:

$220,000

saved

35yourinvestmentpropertymag.com.au

Profile| super investors Profile| super investorsProfile| super investors

The consolidation phaseAs you create wealth through the acquisition phase, Sam believes you should stop and re-evaluate where you are in your life.

“The second phase will help you answer whether you should consolidate your position by reducing the debt on your properties, or sell them down to run your retirement,” he says. “Or it will reveal whether you can start trading real estate and consolidate your buy and hold position by adding trading strategies to your portfolio.”

Now in the consolidation phase of his own journey, Sam has begun trading real estate. He suggests you ask yourself the following question to help answer whether to follow him down that path, or to consolidate your debts:

“Given a property cycle is often 10 years, how many property cycles can I keep investing for?”

If you are nearing retirement age, Sam believes it would be wiser to reduce your debt, rather than trade real estate, which is a riskier strategy than the buy and hold strategy. He says trading real estate is more worthwhile if you have a good buy and hold portfolio and a few cycles in which to adapt and get it right.

“If your profile still has some room for growth, you can start trading property,” he says. “This doesn’t mean you change the way your buy and hold portfolio looks. You don’t ever remove your buy and hold properties, as they are the backbone of your retirement.”

Trading propertyProperty trading uses strategies like subdividing, developing, optioning and buying residential properties, which are bought at the bottom of the market cycle with the idea of selling them at the cycle’s peak.

Sam has made some tidy profits since beginning property trading back in 2006. Over the past 12 months, he has compiled a good selection of stock that he has either traded or is still holding to sell. Refer to the table on page 34.

Mortgagee in possessionThe first of Sam’s above deals was four

houses that he purchased ‘mortgagee in possession’ in Wollongong, south of Sydney. In this event, the bank had foreclosed after the previous owners had failed to meet their loan commitments. The law dictates that when this happens, the bank must take the properties to public auction. Sam was ready and waiting and managed to pick the houses up for a healthy discount. He carried out $100,000 worth of renovations and after three months, had sold them again for a $400,000 profit.

Strata subdivisionSam’s next trade was a 12 unit block on one title, which he was able to strata title. The units were on the market for $2,850,000 and Sam was able to negotiate a discount and secure the property on a six-month settlement, with a 5% deposit, at an agreed total value of $2,555,000.

“During the six month settlement, I had the right to access the property to carry out assessments, with planners, surveyors and certifiers and I had the vendor’s approval to lodge the DA for subdivision, with their consent,” Sam says. “This allowed me to save on holding costs from the loan to the bank, as I was not paying any loan costs during this period.”

The purchase price meant the units were around $208,000 each, which Sam recognised to be a good buy,

especially considering that each was renting for $320 a week.

Sam then had a valuer conduct a ‘gross realisation valuation’, which indicates the total value of the property should the strata be approved. This valuation reported the block to be worth $3,585,000 in total.

In addition, Sam decided to renovate the property, which added about

A $500,000 view for just $280,000

Sam bought in South Brisbane for $70,000 below median

36 yourinvestmentpropertymag.com.au


Sam offers the following tips for investors, currently in the acquisition phase of their journey, who are aspiring to own six properties and be a member of the 1% club of property investors

Establish a budgetRemember you are only looking for a series of small savings. It really comes down to how smart you can be with your money and willingness to test and measure. What will result from the change is more money, but also more confidence to take on further good debt around smart investments. The result is that you will quickly learn how to use money effectively and feel motivated to continue this habit and grow your personal wealth.

A willingness to think differentlyOnly a small percentage of people think and act differently. This small

“Only a small percentage of people think and act differently. This group ends up wealthy as they turn a small asset base into

a multi-million-dollar empire”

Top TipS! group ends up paying very little or zero tax and they end up wealthy as their property portfolios grow and grow. They turn a small asset base into a multi-million-dollar empire. They are policemen, cab drivers, schoolteachers, doctors, farmers and nurses. They are just people with ordinary jobs. The main difference between them and others is that they learn the skill of thinking differently.

Define what you wantMost people hide under the concept of plausible deniability. It’s easier to face the world knowing that making money is for someone else. Being wealthy via property is not easy, but is absolutely achievable. Just like anything else in life, you have to have the grit to succeed. Property investors need to define what they want, set goals and targets and go for it.

Know your limitsIf you test buying property without knowing what your limits can

tolerate, you don’t just test the market, you test your own character and all the positive and negative attributes you have. For many, the burdens of investment become too much and they opt out before they have had a chance to succeed.

Beware of the pitfallsThere are plenty of pitfalls that real estate investors need to understand. Getting your foot in the door of property investment can be a scary proposition. It’s not every day you sign up for hundreds of thousands of dollars of debt for something you are not living in. Common mistakes of less experienced investors include: Only focusing on one deal Purchasing based on a pre-

approval Not planning for the future Not understanding cash flow Not having a team or

a mentor Not having an exit strategy

$370,000 to his outlay. Finally, after paying the loan costs and sale fees, Sam had managed to amass a large profit in just three quarters of a year.

“Ultimately I was able to help 12 buyers, who themselves are going through their acquisition phase of buying real estate, buy a hold property in a solid Sydney suburb,” Sam says.

put and call optionSam’s third deal was a put and call option on two blocks of land in the sought after Hunter Valley, north of Sydney. A put and call option is a contract between two parties, to exchange an asset at a specified price by a predetermined date. The buyer of the call option has the right to sell the

property to a third party by the agreed date, but if the call option has not been exercised, the seller of the property (put option) has the option to make the buyer purchase the property by that date.

“Basically, it is a game of hot potato,” says Sam, who was able to sell the property to a third party before having to buy it himself. “You find a deal, and know you can buy low and sell high. If you have the skill set, you can do this without ever owning the property.”

Over a three-month period, Sam was able to secure the blocks for $140,000 and sell them on for $180,000, netting himself a handy $40,000 in the process.

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