Investor Profile: Jonathan Preston – 5 Properties in 4 Years

[youtube id="LaVsfrn_20o" align="left" mode="lazyload" maxwidth="500"] In this investor profile we talk to Jonathan Preston who has purchased 5 properties in the last 4 years. If you want to be featured on On Property simply email [email protected] Hey guys! Ryan here from OnProperty.com.au, helping you find positive cash flow property. And one of the things that people love to hear is from investors who have gone out there, purchased property themselves and had some experience in the market and achieved some success. And so today for our Investor Profile, I have with me Jonathan Preston, who has purchased 4 properties himself and has built up quite a successful portfolio and has just written a book about it as well. Ryan: Hi Jonathan! Thanks for coming on today. Jonathan: Thanks very much for having me. Ryan: So, give us first an overview of what is your portfolio and what does it look like. And then we will talk more specifically about each of your properties and why you chose to purchase those ones. Jonathan: Yes. So at the moment I have 5 properties. 4 of them are located in Sydney, more specifically Western Sydney, and the last one that I purchased was in Queensland. Basically, I have the philosophy observed like yield-growth, and I believe in that you can actually to continue to build a portfolio over time. Ryan: Yeah. So we were talking a bit before this interview about how you like to invest in areas that are set to grow but you like to have a decent enough field so that they are either neutral or they are positively geared so you can afford to grow your portfolio because we all know that if you go super negatively geared, that is only a couple of properties before you run out of the income to support those properties. So I can understand your attitude there. So, talk us through the first property that you purchased. Actually, are you able to share results of like what have you achieved in terms of equity and stuff like that or passive income before you get into it? Jonathan: Yeah, sure. Well, I will go through each one individually and say what I think it was roughly worth, what I purchased it for, everything like that. So first one that I got was a 2-bedroom in Liverpool. I bought that towards the end of 2012, and that is just a basic kind of 2-bedroom unit. It was quite nicely renovated inside. I paid $217,000 for that one. The rental yield was appraised between $300 and $310 a week, so it was pretty good in terms of the yield there. I would say today, that is worth about $380 - $390, so capital growth on that has been pretty substantial. Ryan: Yeah. Obviously the Sydney market has gone pretty crazy in the last couple of years so you got in at a good time, definitely there. What was your reason for choosing Sydney, and for choosing Liverpool in particular? Do you live around that area or is there some sort of strategy behind it? Jonathan: No. Actually, I have not lived around there. Basically, I wanted to find somewhere that met the criteria of being high yield but also very commutable to Sydney. The commutability to me, to a major city is very important part of the equation. That is really because I think that the urban sprawl is going to take place over time, and I really think that how much a property could go up in value is largely determined by income growth over time, and the capital cities typically will find, basically see much greater income growth over the long term. So, Liverpool was quite attractive... Ryan: Is that something that you know, like is there somewhere that we can say that income growth in capital cities has grown faster than in regional centers or is that just something that we think? Jonathan: I do not know if I can quote you an exact source but if you look at the major centers of the world even when we are looking in Sydney, in New York, London, you will find that the incomes are much higher generally in the major areas than in the peripheral cities. And if you look at house prices across the major centers as well, often that is very much reflected in those prices. If you look at around Sidney and everything, if you look at the inner-city areas, you know the eastern suburbs, the coast in the west, lower north shore, these houses that are going for $2 million to $5 million for substantial houses; obviously, someone is going to need quite a lot of income to support one of those properties. And you can go somewhere like Bathurst or something, I cannot imagine that there is going to be that many people that are going to be earning $200,000 to $500,000 a year that are going to be able to actually support that. Of course, there are going to be anomalies to every situation but I really believe that the proximity to the capital city is going to allow people to earn more, which will allow them to afford a much larger mortgage basically; I guess just to expand a little bit further. Ryan: Well, I am just going to say that Liverpool is like a commuter hub really, is it not, in terms of getting from the western Sydney into the inner city? Jonathan: Exactly. And they have the big train station there. It is quite infrastructure heavy, which I think is a really good point. And there is also the Westfield and everything there. I think that it is an area that has gone through quite a gentrification style change over the last war, and so I think that it is in a good location geographically and yet it is very easy to get into the city and get around from there. So I felt very comfortable going in there for the first purchase because I knew that it is not going to turn around and be rubbish tomorrow or anything like that. It is a solid place. It has the infrastructure, it is well built up and there is definitely a lot of rental appeal for people to live there as well. Ryan: Something about the regional centers or the rural areas is that they can grow really quickly but they can also flip and go the other way quite quickly as well. And as you are saying, obviously people love capital cities. People love the areas like Liverpool that are easy to commute to the city because there are always going to be people who want to live there because when you have 4 or 5 million people in Sydney, there is always going to be a level of demand there versus a rural area that has 2,000 people or something like that, which can fluctuate a lot more. So you purchased that property and I guess your goal was to have a decent yield for that property, what made you go on to then purchase the second property? And talk us through property number 2. Jonathan: Yes. From there, I went to buy a property in the Mt. Druitt Villages region. I felt a lot more comfortable after getting the first purchase in terms of not necessarily needing the world's best infrastructure and everything like that. I guess when I first purchased I was initially a little bit scared about getting the rent and is it really going to work out with the rent, paying the mortgage and all the cost. It was just I had not done it before. And I guess it only took a month or two before we have seen the rental payments coming in and paying the mortgage and realizing like wow, this is really easy; and the property manager doing everything, paying all the bills, sorting all the maintenance. So virtually, there was nothing for me to do except make sure I had enough money in there to pay the mortgage every month. So I was like it was time for me to expand the portfolio, so I bought a place in Mt. Druitt Villages. I paid $238,000 for that. Ryan: When was this? Was this in 2012 as well? Jonathan: No. This was early 2013. I bought the other one end of 2012. I think it had been settled just around Christmas time, 2012. So I bought this next one early 2013, I only paid $238,000 for it. I would say today's value; it would probably be $380,000 to maybe even slightly more than that. Ryan: What made you choose Mt. Druitt because obviously Mt. Druitt has a history of being a very dodgy area of Sydney? I have heard a lot of gentrification stuff is going on in Mt. Druitt at the moment, or has been, but a lot of people would be scared to invest in the area like Mt. Druitt, with the history of crime, drug abuse and all of this sort of stuff. So, what made you go for Mt. Druitt of all the areas you could choose? Jonathan: Well, the yield was pretty attractive. So, when I actually first someone in, I got $345 a week for it and that was on the $238,000 price and this was a 4-bedroom that had been recently renovated. And with that, it had a front and back garden, marble bench top, it was huge. Ryan: So this was a house, obviously? Jonathan:  And so I had seen probably - it is like a villa, it is kind of part of like a group of them that it has quite a lot of space, so there are 7 on the block. But yeah, it has a front and back garden, and it was really just a huge property. By this point I had seen quite a lot of properties, and I saw that the price of it was really attractive. And I felt more comfortable after buying the Liverpool place and I kind of wanted to take advantage of the gentrification that I believed was going to happen. I felt that Liverpool had a little bit of gentrification to go but not that much. I was already comfortable with the area, but I felt like if I can find somewhere that had more room to gentrify, there was going to be more gains to be had, and I felt there was a lot of room for young families to move in there and that was going to make the price go up. And then the nature of it was that they will be getting priced out of the rest of Sydney by that point already. So I thought that there is room for the next couple of years or the next 10, 20 years for it to gentrify a lot more, and with that the big, big capital gains to come. Ryan: Yeah. And obviously, gentrification has happened in so many areas where you have seen prices go up significantly.