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PROFILE

So at the start of their relationship, theywere renting a townhouse together. TheirTV sat on a box. And their holidays werealways camping trips.

Ed says, “We’d done a bit of soulsearching and we realised that our superwasn’t going to get us through in theretirement years. And we always had aninkling and desire for property, so wedecided to get into that.

“We realised we needed to get a bit ofan education first, so we did a propertyeducation course and it really opened oureyes as to what we could and couldn’t doin terms of investing.”

But that first course was just the tip ofthe iceberg. To date, Ed and Helen havespent around $40,000 educatingthemselves about property investment.That includes seminars, books, mentorsand coaches.

“We’re still spending on our education,”says Helen, “because that $40,000 hasallowed us the enjoyment of a $6 millionportfolio.

“Some of the deals we have, we wouldn’thave got sitting at home thinking, ‘I mustinvest in real estate’. But because we’vebeen out there networking with peopleand sharing knowledge and attendingthese seminars…”

Not only do Ed and Helen work on theirinvesting knowledge, but they’ve also hadan education in personal development.

“This is one thing that a lot of investorsforget about,” says Helen. “It’s great toget an education about the theory ofinvesting in real estate, but at the endof the day what actually holds peopleback is fear. People are afraid of losingtheir money. They’re afraid of gettingit wrong. They’re afraid of people saying,‘I told you so’… You’ve got to have thatshift in mindset before you can do itpractically.”

Starting outThis property investing tale begins likemany others – with the purchase of aprincipal place of residence. Ed and Helensaved up enough for half a deposit anda family member lent them $12,000 tomake up the rest.

“It was a bit by luck rather than goodmanagement that the home we boughtwas in Preston (Melbourne) which, at the

time, was growing at about 20 per centper year. So we were able to draw on thatequity after six months of living here tobuy our first investment property,” Edexplains.

“We were equity-poor but had goodborrowing power between the two of us.So the strategy we adopted was a growthstrategy as distinct from a cash-flowstrategy. We needed that to create theequity to buy more properties.”

With this in mind, they bought a brandnew three-bedroom townhouse in themost sought-after pocket of Reservoir.They bought it for $300,000 in 2001and it’s worth around $420,000 now.

The deposit was funded using aninterest-only line of credit on their home.They have since extended this LOC tofund the deposits for other property

purchases. Ed and Helen make regularrepayments on their LOC. They’re carefulto use it only to fund tax deductibleproperty expenses and not personalliabilities. They keep a separate amountof savings in an offset account which cancover any shortfall between theirinvestment income and outgoings.

Ed and Helen’s first investment propertyset the tone for the next few. They wereall brand new properties in high-growthareas of capital cities.

Helen says, “By buying brand new wecould use depreciation schedules to offsetagainst our tax.

“Jointly our incomes are quite good sowe’ve been able to comfortably supportthe mortgages, even the shortfalls, as wellas enjoy the benefits of paying minimaltax.”

Their second investment property wasalso in Melbourne – this time inRichmond. It was a riverside apartmentthey purchased off the plan in 2002 for$337,000.

They settled on the property at the end

of 2005, when it was valued at $350,000.They figure this isn’t a bad return on adeposit bond premium which cost$5000. They used this instead of a cashdeposit.

“It beats having your deposit in a trustaccount not earning you any interest.I’d rather have it sitting in our offsetaccount saving on our mortgages,” Helensays.

By mid-2002 Ed and Helen decidedthey should get into the Sydney market.Yields were very low at the time – around3 per cent.

Would you believe they managed tofind a four-bedroom house in StanhopeGardens with a 7.5 per cent yield? It wasa brand new home so they get fulldepreciation benefits, and they receive$2493 per month from a reliable tenant

without paying any propertymanagement fees. Ed and Helen say it’salso gone up in value, from $399,000to around $560,000 in two and a halfyears.

How could it be done? Investing in adisplay home is the answer. The buildingcompany sold them the house with alease-back arrangement.

The lease has been extended three timesand there’s now a month-by-monthtenancy.

The tenant pays all the outgoings, apartfrom insurance.

On that note, Ed and Helen havelandlords’ insurance on all of theirproperties. However, insurance is onlyone part of their comprehensive riskmanagement strategy.

They always perform a due diligenceon any area they invest in. For example,they check the local vacancy rate. Theydon’t rely on the rate quoted by agents.Instead, they ask the agent how manyproperties they have on their rental roll.Then they count how many are on the

ED KOGTEVS AND HELENCollier-Kogtevs met in theworkplace and have been togetherfor six years. In that time, a lot

has changed. They went from being “prettymuch broke” to having a net worth ofabout $2.5 million. They went fromknowing very little about propertyinvestment to knowing about advancedfinance and property developmenttechniques.

“When I got divorced, my ex got theequity – that was the house, and I got thesuper,” Ed explains. “So we started offwith virtually nothing.”

Helen adds, “I was earning a good wage,but I was paying rent, I had car payments,I had credit card debt. I was earningenough to cover the bills, but like mostpeople, was living week to week. I didn’thave a healthy savings account and neitherdid Ed.”

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Educationpays offA $40,000 education helped this Melbourne couple to accumulate a net wealth of $2.5 million.story Michaela Ryan photography Patrick Rodriguez

“We’d done a bit of soul searching and werealised that our super wasn’t going to getus through in the retirement years. And wealways had an inkling and desire forproperty, so we decided to get into that.”

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bedroom, double-garage home waspurchased for $540,000 and is now worth$620,000.

The house is used as a work base forsales staff from the building company.At the end of the lease, the company willgut the house and rebuild it into a morefamily-friendly home.

“So the beautiful thing is, after six yearswe end up with a brand new home thathas never been lived in and which hashad six years of growth and depreciation,”Helen says.

Time for cash flowWith seven properties, Ed and Helenfound that they’d “hit a financial brickwall”. Ed explains that once your portfoliois worth more than $2.2 million youenter a new risk category in the lenders’eyes.

However, this was the best thing thatcould have happened to Ed and Helen.They were forced to re-evaluate theiroverall strategy, learn about the impactof loan-to-value and debt-to-equity ratioson their lending capacity, and considerthe importance of balancing their high-growth properties with some high cash-flow properties.

“Growth is the engine. And cash flowis the oil,” says Helen.

The search for a cash-flow propertytook them to the mining town ofKalgoorlie in WA. There, in the middleof the desert, they learnt some big lessons.Helen admits that by this stage she’dbecome a bit cocky.

“But this (investment) brought me back

down to earth,” she adds. Lesson one:don’t believe everything the agent tellsyou.

The $173,000 property was beingtenanted through the GovernmentEmployees’ Housing Authority scheme.It had a rental of $330 per week. Helenasked the agent what rent they’d be likelyto receive if the GEHA lease was to end.He told her it would still be worth $330per week.

The GEHA lease did end and what doyou know… the rent dropped to $260.

Ed and Helen would have loved to sell,but they couldn’t – and here comeslesson number two. They fixed theinterest rate on this loan for five yearsat 7.2 per cent. The loan’s break costwas several thousand dollars, whichmeant they’d make a loss if they soldthe property.

(Although a fixed interest rate wasinappropriate for this higher-risk property,Ed and Helen are still pleased they fixedtheir first six investment loans at 5.99per cent interest for five years).

The third lesson was the need for anextremely thorough due diligence whenbuying a property sight-unseen.

When buying subsequent properties

sight-unseen Ed and Helen have organisedindependent rental appraisals, buildingand pest inspections and independentbank valuations. On top of that, theyrequest oodles of photos from the agent.In most cases they would look at 50 or60 photos of a property before they wouldlook at a contract.

“Thank God for digital cameras,” saysEd.

Luckily, Ed and Helen have had somecapital growth on the Kalgoorlie propertyand it’s now worth around $190,000.

The search for cash-flow propertiescontinued. Helen learned from a mentorthat one way to look for cash flow wasto look at a map of Australia and drawa line 300 km inland from the coast.However, she wanted to avoid townswith a population less than 5000, as itcan be difficult to borrow in thesecircumstances.

Using this technique, their next stopwas a mining town only 200 km inlandfrom Mackay in Queensland. Moranbahis the only town servicing about six minesin the area. Ed and Helen discoveredthere was a huge demand for rentalproperties. And there was land scarcity,due to the ground being rich in high

rental list (available properties), andcalculate the vacancy rate that way. Ideallythey seek properties in areas with vacanciesless than 5 per cent, which they estimatewill lead to one or two weeks of vacancyper year.

As part of their due diligence, Ed andHelen also consider whether the area ispopular with renters. They check thepercentage of rental properties in the areaon the Australian Bureau of Statisticswebsite. They won’t buy in an area withless than 30 per cent rental households.

Their Richmond purchase is a goodexample of their demographic researchpaying off. Ed and Helen discovered thatwhile Richmond has a high proportionof rental properties, the majority ofhouseholds were single-person. So theyopted for a one-bedroom apartment ratherthan the two-bedder they were originallylooking at.

Ed and Helen also have an asset

protection strategy as part of their overallplan (that is, protection against litigationwhich could wipe out an entire portfolio).They have purchased all of theirproperties through trusts. They arecurrently putting together their fourthtrust.

Continuing to chase growthIn late 2002 Ed and Helen were in Perthfor a birthday celebration. A local friendtook them to look at some properties, justfor fun.

They came across a two-bedroom displayunit in East Perth with park and riverviews. It had an asking price of $500,000but the agent suggested that they makean offer – any offer.

Ed and Helen thought they’d put in acheeky offer just for the hell of it. A valuerlooked at the unit and placed aconservative value of $450,000 on it. SoEd and Helen put in an offer of $435,000,

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inclusive of the display furniture (wortharound $20,000).

The offer was rejected, but the agentsaid they could have the unit plus furniturefor $455,000. In truth, Ed and Helendidn’t want the furniture. So they usedit as a bargaining chip and said they’dtake the apartment for $435,000unfurnished. And so the deal was done.

In this case, the agent was desperateto get rid of this apartment, because shewasn’t able to start selling units in aneighbouring complex until the final fewin this building had sold.

Helen says, “We learnt this strategyfrom one of the courses we did. Whenyou go into a development of manyapartments… normally by the end of itthe developer’s had enough. He’s madehis profit. He just wants to get out andmove on to the next deal. So often youcan go in and put in a ridiculous offerand it might be accepted.”

Ed and Helen couldn’t have affordedto do this deal on their own, so they wentinto the purchase with an “equitypartner”, a family friend, on the basisthat they’d split the capital growthbenefits 50/50.

They thought, “It’s better to have halfof something than 100 per cent ofnothing.”

They had a legal agreement drawn up,outlining everyone’s rights andobligations, as well as an exit strategy.The plan is to hold the property for atleast five years. And if someone needsto bail out, the other party has first rightof purchase.

At the end of 2002 Ed and Helenheaded back to Sydney. They purchasedanother display home from the samecompany which sold them the StanhopeGardens property. This time the housewas in Homeworld 4 – an area of Kellyvillemade up of display homes from variousbuilding companies.

Knowing the reliability of the company,it was a case of “where do we sign?”

Again they didn’t have quite enoughequity to fund the purchase, so theyentered another joint venture with thesame friend they’d invested with in EastPerth.

They arranged a six-year leaseback withthree six-month options. The four-

äHave a mix of growth and cash-flow properties. Growth properties make youwealthy; cash-flow properties extend your borrowing capacity.

äNever use one property as security for another (cross-securitisation).äFall in love with the numbers before you fall in love with the property.äDo a thorough due diligence. For example, check growth projections, vacancy

rates, percentage of renters in the area. äResearch your target rental market and buy the type of property which will be in

demand.äMonitor properties in high-risk areas and be prepared to sell when necessary.äThe first question you ask an accountant, lawyer, quantity surveyor, mentor etc.

should be “how many properties do you own?”äProtect your assets through trusts.äUse construction loans when there will be a period of time without rental income.äBargain with bank managers – ask them for the interest rate you want.

X-collEd and Helen are very careful not to cross-securitise their properties. That is, theynever use one property as security for a loan on another property. (This strategy issometimes referred to as cross-collateralisation or X-coll).

“If something goes horribly wrong with one property we don’t want the dominoeffect where it impacts on all the others. Having it stand alone means we can dealwith it on its own,” says Helen.

There are a few ways to avoid cross-securitisation. Ed and Helen have used a lineof credit on their principal place of residence as well as their other investmentproperties in order to fund each new deposit.

Loan-to-value ratio“The return on a 90 per cent LVR loan with mortgage insurance is greater than an 80per cent LVR loan with no mortgage insurance,” Ed argues.

Ed and Helen’s strategy When buying subsequent properties sight-unseen Ed and Helen have organisedindependent rental appraisals, building and pest inspections and independentbank valuations.

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They’re also planning to redeveloptwo of their Moranbah properties whichare on 800-sqm blocks. Ed and Helenwant to subdivide and put twotownhouses on each block. The architectdrawings are currently being put together.They estimate the value of eachtownhouse will be around $300,000 bythe time they finish. The townhouseswill be sold off the plan, although Edand Helen will possibly hold on to oneor two of them as well. Ed and Helenalso have plans for a development inregional Victoria.

Helen says, “There’s a growing marketfor baby boomers who are retiring butthere’s not a lot of accommodation beingbuilt. There is for large regional townsbut not for smaller ones.”

Ed and Helen noticed that the availableaccommodation in these markets tendedto be expensive.

“Some of these homes these old folkare living in are so old, they’re fallingdown. They haven’t got the resources topaint them even,” Helen says.

“What we want to do is to be able toprovide brand new, affordable housingfor the retirees, but to do it so that wemake a little profit as well. We’re notlooking at the Cairns deal, where we’remaking millions of profit… so it’s a bitof ‘giving back’.”

Targeting small regional towns withhospitals, they came across Nhill.

They’ve acquired land and are planningto put three units on it. At the time ofwriting, Ed and Helen were just about toget their development approval.

Again they couldn’t have done this dealwithout entering into a joint venture.

They partnered with someone who was“equity-poor but time-rich”.

While they are providing the funds forthe deal, he’ll be doing a lot of the legwork,and the profits will be split at the end.

Helen is also planning to get her hands

dirty. She’s just resigned from her job sothat she can oversee the developmentsfull time.

The plan is to take on four projects peryear.

How far they’ve comeTo their credit, Ed and Helen still lovecamping holidays. But they can enjoy amuch better lifestyle these days than whenthey first moved in together.

Suffice to say the box under thetelevision set has been replaced with acustom-built unit. n

grade coking coal which the miningcompanies have mining rights over.

The coal from this area is supplied tothe steel industry, which in turn isbooming because of a huge demand fromChina and India.

In December 2003, using equity fromtheir investment properties, they boughta house for $96,500, rented for $230 perweek. It’s now worth $220,000 and isrented for $400 per week.

It will come as no surprise then thatEd and Helen went back to Moranbah ayear later to buy more properties. In thattime there’d been a lot of growth, so theyended up buying five properties forbetween $194,000 and $240,000, allon rentals of $450 or higher.

Since then the properties have allgrown to around $300,000 in value,and rents have also increased to as muchas $600.

Helen is mindful that people readingthis article might be inclined to rush outand buy Moranbah property, and shewarns: “Wherever there is a high return,there’s always a high risk. Mining townsdon’t last forever. They’re not what wecall a ‘set and forget’ – where you buythe property, you put a tenant in it, youwalk away and it ticks over for the restof its life… When you’ve got a one-

industry town there are highs and thereare lows.

“So every year we go through a duediligence process on Kalgoorlie andMoranbah. We always go back and revisit.Last year we went in May. We set upmeetings with local real estate agents,developers, people from the mines… Wealso caught up with the council to gettheir views on the projections for thetown. And we do this annually just tomake sure those properties are still safe.

“If we get a sniff of anything goingsour, by keeping an annual check on itwe’re hoping – and there’s no guaranteehere – that we’ll get out.”

With a few more cash-flow propertieson their books, Ed and Helen thoughtthey’d miss out on depreciation benefits.But they were wrong. A quantity surveyingfirm offered to look into the depreciationavailable on their older properties, sayingthey wouldn’t charge a cent unless theycame up with benefits worth double theirfee. As it turns out there were benefitsavailable because some of the propertieshad been renovated.

Construction loansBefore returning to Moranbah, Ed andHelen purchased a property inPakenham – an area of Melbourne they

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saw as a growth corridor. The purchasewas made prior to the house being built.So they took out a “construction loan”.They were able to capitalise the interestpayments for the construction period.In other words, they didn’t need to payinterest during the period when therewas no rental income from the property.The loan would ordinarily have been for$231,000, but it ended up as $237,000once the interest for the constructionperiod was included.

Ed and Helen also did some researchinto Townsville and decided to investthere.

They looked at the “Green Book” onthe Defence Force website, which spellsout defence capital expenditure andprojects.

Seeing how much money was beingpoured into Townsville over the nextdecade, they figured that demand forhousing would have to be strong.

After conducting a due diligence onthe area, they purchased a property in anestate in April 2004. It was near the uni,the hospital and the army base. A lot ofinvestors were buying four-bedroomhouses, so they opted for a three-bedroomplace – with air conditioning of course!There has been a 48 per cent increase inits value already.

This purchase was also made prior tothe construction of the house, and theytook out another construction loan.

Property developmentEd and Helen are constantly learningabout more sophisticated investingstrategies. Their latest foray has been intoproperty development

First of all there’s Cairns. Through amentor they came across a waterfrontblock of land there. As part of a group ofinvestors buying neighbouring blocks,the land was effectively purchased ‘inbulk’.

Their block cost them $630,000 inMay 2005. They believe it’s now worth astaggering $900,000!

Ed and Helen are planning to build ahouse which will bring their total expensesto $1.4 million (for the house and land).However, they estimate it will be worthupwards of $2 million when they’refinished – perhaps as much as $3 million.

YEAR OF PURCHASE CURRENT VALUE CURRENT WEEKLY PROPERTY PURCHASE PRICE ESTIMATE RENTALPreston Apr-01 $247,500 $420,000 PPRReservoir Oct-01 $300,000 $420,000 $280Richmond Apr-02 $337,000 $350,000 $290Stanhope Gardens Jun-02 $399,000 $560,000 $575East Perth* Nov-02 $435,000 $675,000 $420Kellyville* Mar-03 $540,000 $620,000 $727Kalgoorlie Oct-03 $173,000 $190,000 $260Moranbah Dec-03 $96,500 $220,000 $400Pakenham Mar-03 $237,000 $280,000 $240Townsville Apr-04 $216,500 $320,000 $310Moranbah Jul-04 $240,000 $290,000 $500Moranbah Sep-04 $240,000 $290,000 $600Moranbah Nov-04 $237,000 $300,000 $600Moranbah Dec-04 $240,000 $300,000 $600Moranbah Dec-04 $194,000 $300,000 $570Cairns May-05 $630,000 $900,000 N/ANhill* Oct-05 $50,000 $50,000 N/ATOTAL $4,812,500 $6,485,000 $6,372* Joint ventures; current equity is worth $2,539,000, with LVR of 61%; PPR = principal place of residence

ED KOGTEVS AND HELEN COLLIER-KOGTEVSPortfolio