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Merry Christmas 2019 everyone!
How’s your Christmas going? Plenty of food and good times with your most dearly beloved I hope!
MrsFrugalSamurai and I are about to head off to have dinner with the fam fam, but before that, I wanted to share a quick post to continue with this mini-series.
If you joined us late, here is Part 1 and Part 2.
As mentioned at the end of Part 2, I graduated from uni and entered the full-time workforce during the GFC… in banking and financial services no less.
What I saw and learnt during this time deserves a post all on its own I reckon.
But I will say that the GFC solidified in my head that you cannot rely on your job as the only source of income.
Because when times are bad, no one is untouchable for a redundancy.
As a consequence of this instablity, for the first few years of my professional working life, my career trajectory was very bumpy.
The same could be said about the salary levels as well. It swung around between $50k to $90k.
Although I must admit, I was fortunate to still be living at home during these years.
Which meant my costs and expenses were kept wayyyy down.
And because I was helping out with the family business as much as I could in my spare time, I wasn’t going out much either.
Living at home, not going out, and a general sense of frugality meant I was able to save a ridiculous amount of my wages.
Some weeks, I calculated I was banking over 90 cents for every dollar earned (post-tax).
On a $50,000 salary, that was over $35,000 in savings alone. On $90,000, that’s over $60,000!
(Although I wasn’t just a working hermit, I did go out and enjoy life some times as well, but I’d say on average I’d be banking 70-80% cents in the dollar).
It was also during this time that I found investing in shares, or more specifically, speculating in micro and small caps.
These where the companies operating out of basements or garages or, if I was “playing it safe”, an actual storefront or office.
After a couple of lucky strikes, the gambler’s fallacy showed up… with a monster $40k loss.
I was devastated.
Luckily, the best mistakes you can make are when you’re young.
And it wasn’t any different with investing.
So bit by bit, I picked myself up and read up on any investing material that I could find.
All the classics were read, anything written about Warren Buffet (of course) or Peter Lynch, The Intelligent Investor, The Little Book That Beats The Market, Reminiscences of A Stock Operator (personal favourite) and many, many more.
It was also during this time, when I was actively looking to buy my first property.
There were plenty of ones I viewed, and some I should have pulled the trigger on (read about an $800,000 mistake here).
But after much searching and bidding, in 2010 I settled on a 2 bedroom unit for $435,000 (worth $750k at age 30).
I didn’t think too much about real estate after that to be honest.
Until 2014 that is…
You see, the thing with property over shares here in Australia, is that the banks can lend you much more against the valuation – with shares, typically you may only be allowed to leverage 2x or 4x of your money.
But with property, the banks allow you to borrow up to 90% (sometimes more, although much rarer these days) of the property’s valuation.
That means for every $1 you contribute, the bank will lend $9 or 9x your money!
And if the rental yield is high enough, you can just get the tenants to pay off the mortgage, without dipping into your own savings.
So the way I thought about it is if I could buy enough high-yielding properties which can pay themselves off, wouldn’t I be able to just live off the rents in 30 years time?
Factoring in rental and valuation increases, that’d be a handy retirement to have.
The Next Few
The only issue was that my savings was very limited at this point, and I didn’t want to tap into equity from my existing property (should have done in hindsight, oh well).
Which is why I looked outside of Sydney (should have stayed in hindsight, oh well).
Property 2 and 3 were bought in Canberra for $215,000 (worth $300k at age 30) and $220,000 (worth $260k).
Then came a few properties in Adelaide, bought for $220,000 (worth $250k) and $201,000 (worth $250k) and $150,000 (worth $175k).
Total acquisition costs (before 30) were $1,441,000.
But don’t forget that because all the loans were principal and interest repayments, they were reducing each month.
So at age 30, the total loans came to around $1.1m
But courtesy of natural growth and buying well (low-balling), total valuation (based on comparables) came to around $2m.
Rental yields are a healthy 7-9% across the portfolio as well.
That’s only $900k…
Yes, I can see that!
But following on from the lessons of blowing away $40k on shares, I managed to get educated lucky with a few subsequent picks.
Codan, Invocare, Resmed and my favourite – Domino’s Pizza (who knew!), were some of the stand-out performers.
Throw in a bit of spare cash and other bits and bobs and there ya go.
Millionaire before 30.
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I’ve gone on to buy more real estate! Can’t let a good thing go, heres one I bought last year with MrsFrugalSamurai.
A side note, but honestly I do not believe what I have achieved is anything special or different from the countless others who have just bought a property or three in Sydney in the last 5-7 years and now count themselves as “millionaires” as well. We have to thank the mother of all booms for the growth.
You can see the main contributor to net wealth is still the first Sydney property.
Sensei, awesome job on reaching 1 Mio by 30 – guess 99,9% of all people don’t achieve that (including me). I broke the 1 Mio USD mark when I sold my business when I was 37 about five years ago (now at approx. 4,5 Mio USD). For me, what works owning shares in companies that pay dividends. And since 2020, I’m building my “dream” All-Weather Portfolio of the best buy and hold forever stocks (currently have 40 so far – love the passive income). Its current value is at $600,000 US, paying about $24,000 US in dividends every year! Anyways, keep it up, love your blog! Cheers from Singapore, Noah
The Frugal Samurai
Noah! Thank you for your kind words and wow inspirational stuff on the USD$4.5m (does quick, rough yet somewhat accurate calculation in head)… um that’s almost AUD$7m! Amazing stuff, would love to hear your story one day! I really like your all-weather portfolio, it’s very astute and has heaps of merit but why not just high paying dividend ETFs? Anywhoo – thanks again and happy investing!