For Katrina Barker, 49, a single mother of three, the idea of buying an investment property stemmed from motivation. Barker, who works as a marketing manager in a reputed firm, says, “I wanted to move my family forward and set myself up for some financial stability. That’s most people’s driving force, I believe—that you want to have something behind you and also have passive income for the future.”
Barker saw the property market as probably one of the most stable and tangible concepts of investing instead of shares. And it took a lot of thought process.
Just before the pandemic, she started her research and looked at a bevy of unique properties. Friends and acquaintances spoke about ‘low-risk buying apartments’, the ‘yields’—and the language was jargon. “I couldn’t understand what they really meant,” she says.
So, Barker decided to educate herself. She read books and then enrolled in property seminars that gave her a better understanding of what is a good investment and what is not.
However, the most primal thing, believes Barker, is working out what do you want to achieve for your future. “And I think everybody has different visions of what they want. I wanted passive income, but I also wanted to have substantial capital growth within my markets; that was my key factor—picking areas of capital growth.”
Once she had her goals set, the next step was minimising risks, which she says was “probably the scariest thing”. She was confronted by these questions: “How do I go and buy a house and have so much mortgage, do I overcapitalise and get overwhelmed by these huge mortgages.”
Clearly, it is a daunting prospect for a single mother on a single income. So it took more education. She first enrolled in a three-day seminar and then ended up with another five-day seminar with a mentor assigned for her.
The initial three-day seminar, she explains, was about being clear on what you want to achieve, how you want to achieve it and developing a strategy. “Once you work out your strategy, you can go forward to make a plan of what it looks like. It is also what your retirement looks like. It is just not a short-term vision. It is long term and how you expect your lifestyle to be, how much money do you need to keep that lifestyle.”
These are questions, she argues, that are not generally asked in standard property investments. Generally, it is more around how you can make a quick return that is stable and secure.
But for Barker, going deeper into it was probably more aligned to her personal experience. “I think most people can tailor it to their personal vision of what they want to achieve,” she says.
After she finished her course, Barker looked at key growth areas. By that, she means the overall growth of a town, city or country and what areas have the most advantages. These include key infrastructure that the government is investing in, leading to capital growth.
Identifying those key areas by using tools to study the property market is the first thing, emphasises Barker, adding that there are many online tools too.
Barker took her first plunge just before the pandemic buying a three-bedroom house, which she turned into a four-bedroom house. “It had a sunroom that was easily converted into a room. So you look at how you can increase the property’s equity inside the property. My strategy was to buy something old and renovate it. If you can increase the room size, you can increase the money per room.”
There were lots of challenges, of course. For Barker, the first part of the challenge was understanding the finance side—the first process of actually purchasing an investment property versus your personal home. “You will be looking at contracts, understanding the clauses, setting up a company, setting up a trust fund or however you want to do it.”
That is where the role of mentors come in. “They are important to help with the success and minimise the risk because they have done that before. That’s why I chose to have a mentor to assist me along the way.”
The next challenge after the purchase was keeping the project within the timeframe and the monetary limit and managing that project. “There are structural issues; you are constantly checking with the Council for limitations, renovations etc., there is a lot of extra work involved,” she reflects.
For Barker, the critical point in renovating was increasing the property value in a key growth area. “When you relook a year later, you can then remortgage that place and take the equity out of that mortgage and buy another one.”
And that’s exactly what she did. Barker bought her second property a year later and during the pandemic.
“The second purchase was a lot smoother experience,” she says. “I was able to achieve the tasks within more or less the timeframe I had set; overall, it was a good outcome. And I have fantastic tenants in both properties.”
Barker found that buying her second property during the pandemic was good as the price was still stable within the market. “I could see the price was going up in capital growth, and house prices were not dropping. As long as house prices continue to grow, there is hope.”
But she realised that the banks were definitely more cautious in lending money during the pandemic. “They made you jump through a lot more hoops, and they required a letter from my employer to validate that I would still be working during the pandemic. They asked for that security.”
Asked if she has made the right decision, 100 per cent, Barker says. Going forward, the plan for her is to buy several more. “Hopefully, this year, I will purchase my third property; I am just looking for some more key growth areas. I understand the market is continually changing, but it will go steady as far as the house pricing is concerned. I don’t think the market will drop. But you’ve got to keep up to date with the current reports.”
Barker’s advice to those wanting to get into investment property business is: “Get as much financial education as you can, read as many books, go to many seminars, your first seminar should not be your be-all and end-all, go to many seminars and see what fits you, there is no one size fits all. Also, work out what you want in the long term for yourself.”
There are many people out there all loving the idea of investment properties, says Barker, “but 90 per cent of them don’t understand how to invest, and the amount of information out there is very overwhelming”.
She also says one of the biggest challenges is trusting sources and working out what plan will work. “People should work out and look at the difference between negative gearing and positive gearing,” says Barker, who has opted for positive gearing.
“If you are looking to get ahead without much outlay and using your taxable income to reduce the amount of tax you are paying and creating wealth out of that, then negative gearing is the strategy. If you want to increase your income that is coming in, positive gearing is the way forward because you can generate income from it. Yes, you pay tax from your income, but you still end up positive.”
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