A property investor who owns more than 80 rental properties says people struggle to understand people making money when it isn’t a “per hour” activity — especially when it involves earning 10 or 100 times a normal wage.
Graeme Fowler focuses mainly on a buy-and-hold investment strategy, but also makes money through property trades.
He said he had done about 250 to 300 trades over his investing lifetime. The key to success was buying the house at a good price initially, he said.
“People can sell for all sorts of reasons and have various motivations for selling. Some vendors want a quick cash deal as they have an offer on another property to buy.
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“Others may not want to be landlords anymore and want to sell privately. Often they don’t want the tenants to know it’s going on the market and so want to sell with the tenants in place.”
He said most vendors would find a cash offer more attractive than one that had conditions, which meant he could offer a lower amount.
In a recent deal, he made $40,000 from a trade that he bought and then sold again within three weeks.
In 2017, he and his wife, Katrina, did 24 trades, trying to see if they could make $1 million from trading. They reached about $880,000 in trading profit, plus rental income.
“Each deal we do is different and people seem to ask the same questions each time like how much tax is there that we pay, how did you get the deal, why did they sell so cheap, did staging really add that much to the price, what is the address so I can research this more…”
He said they paid hundreds of thousands of dollars in tax each year. Gains made on rental properties bought and sold within five years, or bought with the intention of selling, are taxed as income.
There may also be GST to pay.
In one deal he did, the vendor wanted $200,000 and the house was going to go to a mortgagee sale if it did not sell quickly.
Fowler negotiated a sale price of $168,000. He sold it two days later with six offers for $220,000.
“I found out later they had turned down $195,000 also privately only a few days earlier than I bought it. Why, I don’t know why they turned it down. A good friend of mine was the other one that offered.”
One of this first trades was a purchase from a divorcing couple almost 20 years ago, he said.
“They didn’t really have a price in mind but asked me to meet them both with their lawyer. I said yes, the four of us chatted in the lawyer’s office for a while. Both partners did not want the other to get any money, they disliked each other that much.
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“They owed $24,000 on the mortgage, the property was worth at least $60,000. They wanted me to pay $26,000 which would cover their legal cost and the mortgage owing. The lawyer knew it was also worth a lot more and asked several times if they really wanted to do this. They were adamant, so I bought it, and it was sold a week later for about $62,000.”
In another case, he was in a multi-offer situation offering $370,000 with a competing offer of $410,000 subject to sale.
“The vendor took our offer as they wanted certainty having bought something else. Our intention was to reno it spending around $20,000 and then sell it again.”
But then the purchaser who missed out sold their house and approached Fowler wanting to buy the house.
“Met them there a few minutes after getting the keys for it when we settled. Agreed to pay $412,000 and settled a week later.”
But Fowler said he often received backlash from people who were uncomfortable about traders making money from property.
Some thought they should pay more tax, he said.
“Also that they cannot seem to understand that not everything is a dollar-per-hour activity.
“People may earn $30 or $40 an hour and then see someone make $30,000 for the same amount of time involved, they get upset or think that it’s wrong in some way. Earning 10 or 100 times as much as someone else does for an hour or two work is beyond many people’s comprehension or understanding.”
He said people were more willing to accept a deal hat involved a lot of work.
“One property we’re doing at the moment is a repile-and-renovate job which so far has taken six months and still has a long way to go. If we’re lucky, we will make about $40,000 on it after all expenses, before tax. People generally think this sort of trade is okay because a lot of time is involved, or if we fully renovate a property and sell it, it’s okay. The key was still buying it well in the first place. These same people however think it’s not okay to be diligent in buying, and then selling again doing nothing to the property. “