3 days ago
I moved from China to Australia in my 20s unable to speak English and started working as a receptionist. I now own multiple properties and never worry about money: Here's my advice to Aussies
A migrant who moved from China in his twenties unable to speak English says Australians need to have at least $5million worth of investment properties to enjoy a comfortable retirement and avoid being stuck in the middle class.
Alex Shang, the founder of AusPropertyStrategy, told Daily Mail Australia the biggest mistake someone could make was aspiring only to own their own home as an owner-occupier.
'If their goal is to live like an everyday Joe, then they don't need to buy investment properties - they just own a home and that's it,' he said.
'They may forever stay in the middle class who pays the most taxes compared to lower class or the rich.
'Once they buy a home, their borrowing capacity is used up and there is no way for them to buy another property, so basically they're stuck or they can choose to go for rent-vesting; they rent a place where they work and then use the money to invest in another city.'
With house prices rising in Australia over the long term, pushing Sydney's mid-point value to $1.5million, properties with a backyard are regarded as a better way to build wealth for the future, as surging population growth makes residential land more valuable.
'An apartment for $700,000 to $800,000 is a viable option in Sydney - the price will not increase much meaning they have a place to call home but their wealth will not increase,' he said.
'For the same amount of money, $800,000 can still buy you a standalone house in Brisbane, Perth or Adelaide with good capital growth and good rental yield.'
With house prices rising in Australia, over the longer-term, properties with a backyard are regarded as great way to build wealth for the future, as surging population growth makes residential land more valuable (pictured is Oran Park in Sydney's outer south west)
Mr Shang moved to Sydney from the Chinese city of Shenyang at age 24 in 2005, after completing a Bachelor of Economics majoring in share trading.
'I couldn't speak a word of English when I came,' he said.
'I did well in written English and listening, reading but not speaking.'
He began his career in Australia working as a receptionist for a real estate company, before getting Masters degrees in accounting and business administration.
The 44-year-old property investor admitted his first few Sydney apartment purchases weren't successful, leading him to now focus solely on buying houses, based on the scarcity of available land.
'I lost money on those - in the latter days I sold everything because I lost a lot of money; I need to sit down and think about what I did wrong,' he said.
'I found out that if I were going to invest in houses from the same time as I bought the first apartment, I would have made a lot of money, a lot.
'I sold all of the apartments and started buying houses and from there I always made money, never lost a cent.'
After a slow start with a $400,000 two-bedroom unit in Kogarah in 2011, which made only modest capital gains - he learned from his mistakes and went on to buy houses across Sydney, Brisbane, Perth, and Melbourne, having previously also bought units in Wolli Creek and Arncliffe.
He has also written a Mandarin-language book for Chinese buyers - Australian Property Strategy - on how to grow a property portfolio in Australia.
'Land is scarce and apartments, like building on top of each other, they can increase the supply by many times easily; they can't increase the supply of land,' he said.
The best time for someone to start would be in their twenties, based on the idea of first chasing houses that would get strong capital growth followed by buying properties with higher rental yields, or income as a proportion of the home's value, Mr Shang explained.
'In the first 10 years, they buy high capital growth properties; the second 10 years, they buy high rental yield properties and then when they reach retirement, they need to sell a few of their properties and pay off the debt,' he said.
Mr Shang declined to say how much his portfolio was worth or how many properties he owned, as the director of a membership-based company offering 20-year mortgage investment strategies.
'There are a few things I don't talk to anyone: that includes how much money I have, how many properties I own and my family because I think that's my privacy,' he said.
'If I tell people how much I have, everyone will want a piece of it; the taxman will want a piece of it.'
But he said he continues to live modesty, driving a $20,000 Toyota Corolla occasionally but mostly getting around on a motorbike.
'I like to keep low key; I don't wear expensive clothes; no luxury cars; I ride a motorbike actually and it's cheap to maintain,' he said.
'I invested in some properties and then I don't need to worry about money anymore.
'But I've bought and sold properties pretty much in each capital city in Australia.'
His rule for sound investment is to look at markets with population growth and a diversified economy.
'It depends on how you define value: I never buy properties just because it's cheap - I need to see the future of it,' he said.
'If I don't see the future, I don't buy. For property to increase in price, there are a few fundamental factors you need to consider: one, is population growth and then you need to have a lot of job opportunities.'
When it came to having an investment strategy, he said it wasn't about the number of investment properties someone had that made them rich.
'It's not the number of properties, it's how much they're worth,' he said. 'If you ask me today, I would say $5million to $7million but in investment properties, excluding their owner-occupied property.'
Mr Shang argued a property portfolio worth more than $5million was more likely to generate passive income of $350,000 a year that would enable someone to either retire early or have an income stream to have a comfortable retirement.
He argued that someone with a $5million investment portfolio could invest the rental income in an exchange trade fund (ETF) on the Australian share market, and earn seven per cent returns every year.
'But if you have five properties, worth $5million, then you're really rich,' he said.
'If you want to, depend on yourself, then you need to have a net worth of about $7million to live comfortably.
'Holding properties with positive cashflow and use the cash to invest in ETF is good, as long as the yield is more than the mortgage interest rate.'
The banks typically lend an owner-occupier five times their salary before tax.
But if an individual or a couple are buying investment properties, they can borrow six times their pay.
While that's considered to be in the mortgage stress territory, income from renters means a borrower can more easily service the home loan.
'Usually, you get a little bit more borrowing capacity if you buy an investment property because the investment property will generate some rental income,' he said.
'That rental income is considered part of your personal income and if your personal income jumps, your borrowing capacity jumps.'
Passive income from rental properties also means someone has a better chance of retiring early, and an investor can also claim rental losses on tax through negative gearing.
'On retirement, one can choose to own a few debt free houses to enjoy future capital growth and current cashflow,' he said.
'If there is no debt, it's great for a stress free life but bad for investment in terms of cash on cash return.'
