11 Jun The $300k Mistake This Gen Y Property Investor made on his first home!
In this week’s episode, the spotlight is turned to us, as Kevin Turner interviews Jayden Vecchio.
Jayden is the director of a company called Red & Co. They specialise in finance, rentals, sales, and development management. In his very early 30s, he already has five properties and he says he’s well on his way to having 15 properties in his portfolio over the next five years.
Jayden, give me your backstory. Where did it all come from? What’s your experience?
Jayden: Thanks for having me, Kevin. I started working with a couple of big banks when I was straight out of university, in 2007–08, around the time the GFC was starting to bite, which was an interesting time.
I got to learn a lot of the background of how the banks work in terms of securitisation, the mortgage market. I worked my way through to private and commercial banking, where I was dealing with mums and dads and investors and learned a lot of the good things you need to do and the bad things that happen in the banks, unfortunately. Then I used that as a bit of a platform to start my own business, Red & Co, about four years ago with two other business partners.
Like you said, these days we’re basically an all-in-one property solution for people who are looking at buying, investing, developing, and selling. So it’s all been one big progression.
You were recognised in 2016 as the FBAA Commercial Finance Broker of the Year, and that wouldn’t have come too easily, I would imagine. FBAA being Finance Brokers Association of Australia; is that correct?
Jayden: Yes, that’s right. That was quite exciting, because they’re obviously a national organisation, and it was good to be recognised for the work that I’ve done over the last couple of years, especially in the development finance markets across Brisbane.
I’m helping funding some pretty big projects across that – over a hundred townhouses in some cases – and then in the commercial finance markets, we’ve funded a shopping center down in Ballina, one in Yeronga, and then even a couple of office towers down Coronation Drive for some fun.
It’s not like traditional mortgage broking, which is good, because I get to see lots of different structures and things, and the good, the bad, and sometimes the ugly, and trying to help people through that.
No doubt you learn a lot from that, too. Let’s talk about your own experiences. Interesting when you did communicate with me first, you said you’ve made probably all the mistakes. I’d question that; I think I’ve made a few mistakes that you haven’t made.
But that’s the best way to learn, isn’t it?
Jayden: It definitely is, because I know it makes a big difference when you can sit down with someone and look them in the eyes having been in that situation. Or if they’re trying to grow aggressively and want to grow a portfolio, which a lot of young people these days are aspiring to do, it’s good taking a step back and saying, “Well, just because we’re at historically low interest rates, doesn’t mean it’s always going to be that way, and you have to remember you have to have a bit in the tank in reserve, because otherwise, you can get caught out.”
Tell me about some of the mistakes you’ve made. I am going to ask you a question to round this out about if you were to go back and do it all again, what would you do differently?
I guess it’s going to be couched in terms of some of the mistakes you’re going to tell us about now, but I believe that, like most of us, you stretched yourself financially as well at some stage. Did you?
Jayden: Yes, I bought my first unit in Sydney. I was living down there in 2009, and within 12 months of owning it, I was hooked. I knew I was going to be this property mogul, I was going to own these properties. I was ready to go at it, hammer and tongs.
Within that 12 months, my first property had a bit of equity gain, and meanwhile, saving up and trying to buy another property. In early 2010, I’d saved up enough and bought another property in the same suburb, in Alexandria in Sydney.
It was just a small, 50-square-meter unit. If you imagine a rectangle, you cut it in half and you fit a bedroom and lounge room and stuff in it, that was basically it. There wasn’t much to it, but I thought there was some scope there to do a bit of renovation, some cosmetic stuff, tart it up a bit, and potentially either rent it out and keep it, or flip it and make a budget.
What I didn’t realise was around that time in early 2010 was when the RBA was actually on an interest rate increasing cycle, so the rates went up in March by 25 basis points, in April, then also in May, and the expectation was the rates were going to keep rising.
So for me as this young property investor who just settled on my second investment property, hadn’t quite rented out my first investment property, I was trying to cash flow this, and all the while, trying to renovate the second place in Alexandria. I was painting, I was doing the carpet, and I hadn’t really set out a budget. I hadn’t prepared myself. I didn’t really know how. I thought I could do it and manage it and make it work.
Within the first month of just trying to paint the place, I didn’t realise the first mistake I made was the ceilings were made out of this Vermiculite stuff. It almost looks like a popcorn ceiling. So instead of using a couple of liters of paint, it ended up using three times the amount of paint. It blew out my timeframes, my budgets, all the while the interest rates across both my properties were going up and up and up.
It literally felt like a noose around my neck, to the point where I was in the place and it was starting to get cold with winter coming and I actually had to use the oven as a heater to keep me warm at night because I had to save my money towards the repayments.
It was a very low point and very uncomfortable, because I stretched myself financially. I’d basically borrowed 100% to purchase that second property, and I didn’t have a lot of savings behind me.
I obviously didn’t do a budget, didn’t think about the cash flow and worst-case scenario, so it’s definitely something that when I sit down with anyone now on the finance side – our business definitely looks at this – you have to look beyond what the rates are today and what the situation is today: what’s the worst case and where they’re going to?
A great lesson, isn’t it, to plan for the worst-case scenario, because just listening to that story, those two properties you just talked about in themselves are probably very good properties.
No doubt you sold those, but if you’d held onto those, what sort of position would you have been in today if you had a better plan and a strategy?
Jayden: It’s one of those ones where I started out with a plan and I was going to stick to the plan until I got to that point where it was just unmanageable. It was very stressful, and you’re quite right, I ended up having to sell them.
But I actually saw the first apartment I bought in Sydney, in Alexandria for about $340,000 in 2009 recently sold for over $600,000, so it has doubled.
That probably would have been about what you lost on that deal anyway, wouldn’t it?
Jayden: It’s one of those things where you just have to look forward. There’s no point looking back on that and what you could have done, but it’s worth taking those lessons in and working on it going forward.
That’s part of the university of hard knocks, isn’t it? I thing I think about too – and no doubt you’ve done this – is that you learn from those experiences and you take them into your next deal. No doubt, you’re a lot smarter now.
You tell me you have five properties. Whereabouts are they?
Jayden: They’re all in Queensland, actually. I think that’s more a case of Sydney, the prices have gone up. Also living in Brisbane, it’s good to know the market intimately. In Sydney, I was quite fortunate that I had some friends and people who knew the areas and helped me give me a bit of a leg up investing.
I think it can be hard when you’re investing to save unless you have that guidance, and I like now being able to if you need to go fix something, I can go fix it, and having a bit more control over that.
They’re all within five to eight kilometers of Brisbane CBD, a mix of houses and a few apartments.
Kevin: Over the next five years, your plan is to add another 10 properties to build it up to 15, which is what you mentioned to me in your notes. Will any of those be interstate? Will you branch out and go interstate again, or will you still continue to buy in Queensland?
Jayden: I think if the conditions are right and it makes sense, I potentially will. But to me at the moment, living and working here, the focus is mostly on Queensland.
I think it’s important in any portfolio – that’s one thing I have learned – is having diversification, because like in Queensland a few years ago, if there’s a bit of a mining downturn, that can lead to broader impacts on the economy in the local area. So it’s always good being hedged against that, and obviously being diversified interstate in different markets can help protect against that.
But I think for me personally, my view is probably to keep it here where I understand intimately the infrastructure that’s going up, the projects that are happening, the developments that are in the area, the government, what’s in the pipeline, tourism, and I think it’s important in my situation having a really narrow focus and just being across those details.
Kevin: You’re still very young and you have a long way to go with your career and your business. Is there a possibility that you’ll probably look at getting into some commercial and/or development at some stage? With the number of people you know through your business, is that a possibility for you?
Jayden: Yes, the business has a development management arm, so I’ve invested some funds into some smaller projects there, and they’re all boutique, sub-ten properties. Definitely involved in that, and I think that’s a good way of getting in the market where you can leverage other people’s experience and learn from their mistakes, I guess.
And commercial is definitely something that I’ve been actively looking for recently, because it can make sense within super. It can be a good investment because you can look at longer-term leases.
The only downside with commercial, as you know, is it requires a lot more capital and funding at the front end, because you can’t leverage it up as much. So it’s that tradeoff of allocating more capital to potentially get longer returns, but then how that fits in with the overall strategy. It’s important to take a step back and look at that.
Jayden, round this out for me, if you could. Just give me the best pieces of advice you’d give people based on what you know now, probably what you would have done differently. What would you say to me if I came to you and said I want to go down the path and start to build a portfolio? What should I, and what shouldn’t I do?
Jayden: I think the quote that comes straight to mind would be “Failing to plan is planning to fail.” I think in my situation, I had a plan but then I actually didn’t stick to it, and if I look back retrospectively, if I’d stuck to it, I’d probably be in a potentially better position.
It’s good knowing that now and being able to sit down, take a deep breath. And if I had a bit of extra funds there and planned for that, I probably would be in better. So yes, I definitely think having a plan and then sticking to it is critical to success in property.
Great advice, Jayden. Any other advice before I leave you?
Jayden: I think it’s always good to leverage other people’s knowledge and the advice of experts. I know when I got my first property, like I said, I had some friends down there who all owned multiple properties and knew the area to give me advice.
I think it’s the same these days. There’s so much to know in the markets, in finance, even when you’re renting out. So I think it’s important to stand on the shoulders of giants and leverage other people who have done this stuff before, have made the mistakes, and you can take away and learn and do a lot more quicker using that.
Kevin: Jayden, it’s been great talking to you. Thank you very much for your time. If you want to make contact with Jayden, if you have a few questions or you want to start to build your own portfolio, the website to go to is RedAndCo.com.au. They’re finance rentals, sales, and development management specialists.