PHILIP AND ANGE KERR
- Philip – Retired teacher and administrator in special education
- Ange – Community Resource Officer, Department of Communities Disability and Community Care Services
- Age: 55
- Family: Two Adult Children Living Independently
- Began investing in residential property (year): 2007
- Property portfolio value (including principal place of residence): Approx $2.05 million
- Number of houses you own (including principal place of residence): 5
Philip and Ange Kerr own their own home and have four investment properties. They bought their first home in 1982, and bought the first two of their investment properties in 2007. In 2008 they bought their third and in 2009 the fourth property. They plan to buy another property every year until Ange retires.
Philip and Ange both trained as teachers. Prior to buying their first home when they were 28-years- old, the Kerrs had little in the way of savings or investments. Before they married, Philip dabbled in some shares but he says, “They went up and down and I lost money.” They took out a personal loan to finance a four month trip to Europe. When they returned home to Mackay, North Queensland, Philip got a job and Ange stayed at home with their first child.
When Philip’s parents died, he inherited a half share of the family home in Brisbane. The house was sold and the Kerrs used that money towards a house of their own. Even though they had $30,000 deposit and only needed to borrow $20,000, it was difficult to get finance. Ange says, “It was in the days before bank deregulation and the banks could do what they wanted. Travelling for four months and only Phil having a job went against us.”
In 1989 they moved to Brisbane to undertake further study and rented out their house in Mackay. In 1993, they moved to Nerang on the Gold Coast. “We owned the Mackay house. Unfortunately we sold it to help buy in Nerang. We now know we should have used that equity to buy our family home on the Gold Coast,” reflects Ange.
After settling into life on the Gold Coast, the Kerrs had no thoughts about investing. Philip had a stable job and good superannuation. Ange had worked in, and resigned from, various teaching positions over the years so her superannuation was smaller. Ange explains, “In our 40s we thought Philip’s superannuation would be enough for our retirement. It seemed so much at the time.”
In the late 1990s, the Kerrs were introduced to a property investment company through an acquaintance at their church. “It seemed like a fun idea and we thought, wow, we could have two houses,” says Philip. They paid a fee, inspected some land, and even picked out the tiles for the investment home. The purchase was based on using the equity in their Nerang home but in 1998, property values dropped and the value of their home dipped from $180,000 to $160,000 so they couldn’t get the finance. Philip and Ange were disappointed by the experience. “We paid $500 but we didn’t learn anything and there was no follow up from the company,” says Ange.
Instead, the Kerrs purchased shares on an ad hoc basis, paying cash for Telstra T1 and T3 public offers and Milton. The Telstra shares didn’t grow much and Milton dropped during the GFC. The Milton shares are now at about 70 per cent of the pre GFC price. The shares still provide income, although if they sold them, it would be at a loss.
When the Kerrs reached their 50s, they realised Philip’s superannuation wouldn’t be enough for their retirement. This realisation together with the downturn in the stock market prompted them to look for a more stable investment vehicle.
One Sunday Ange was watching TV and she saw one of John Fitzgerald’s infomercials. That led to the Kerrs buying the Untold Wealth: Success from Scratch workbook and attending a seminar. They were both impressed by how John spoke, the sort of person he appeared to be, and how he gives back to the community. Several weeks later, their journey began.
They read Seven Steps to Wealth before their interview with their consultant who is an ex teacher and they related well to him. After reviewing the Kerrs’ financial situation, site visits were organised and they selected two properties – one in Heritage Park, the other in Drewvale, both in southern Brisbane. Heritage Park started building immediately and Drewvale took over six months to go through council planning and be registered.
Ange says, “We were pleased we’d chosen the two. We would’ve been disappointed if we’d had to wait six months. Our son who was studying a course in design at the time used the construction period of the first house to take weekly photos of the building process.”
The first house was completed in the required time frame and rented immediately. The second property required tenant gap cover for four and a half months before it was available to be rented due to builder delays. Their other two properties are in South Morang and Tarneit,Melbourne, purchased sight unseen and they are both rented.
Three of the Kerrs’ investment properties were bought using the equity in their home and the fourth using their own home and equity in the Drewvale property.
To Philip, the best part of their investment journey so far was realising how easy the process can be and that they can trust their investment team. The worst period was related to the tenancy of the first two sets of tenants at Heritage Park (but one did alert them to a termite problem, so that was a blessing in disguise). Their third set of tenants in the same house has been great.
Ange considers the best moment for her was when they started investing in property, taking a positive step towards their financial security. The worst was dealing with the solicitor when signing contracts for their first investment property who couldn’t answer Ange’s questions, but their consultant quietened her nerves.
As for their best investment decision, Phil laughs, “I bought an Aboriginal dot painting in the 1970s for $5 when no one was interested in Aboriginal art. I sold it in the 90s for $9000. I should have kept it for a while longer!”
Ange was born in Germany and has many relatives there. The Kerrs haven’t travelled overseas since their European trip backpacking in the 1980s so they’d like to go back, visit relatives, and travel in comfort. They also plan to help their children financially where they can. Ange says, “We now know that by investing in residential property we will be financially secure and be able to meet our goals.”
The Kerrs aim to add another five houses to their portfolio over the next five years although Ange says, “I am dealing with some health issues so I may not last working until I’m 60. We’ll see how I go.” If not, they intend to buy a house every year Ange is still working. Once she retires, they’ll sell down to pay off their Nerang home and keep the remaining ones. Between Philip’s superannuation and the income from their remaining portfolio, they will be able to live comfortably.
MANAGING CASH FLOW AND INVESTMENT ADVICE
When the Kerrs first started going to investment seminars, a speaker said that he wrote down everything he spent so he knew exactly where his money went. Phil and Ange kept a financial record of their expenditure for a year. While they don’t adhere to a strict budget, the exercise helped them become aware of where their money went and what they were prepared to do without. “So much money runs through your hands,” explains Ange.
The Kerrs manage their finances by borrowing against their own home or use the capital growth from their investment properties each time they begin a new house. This money is used as the deposit on the land and to cover interest payments while the property is under construction. Once the property is completed and they have received the depreciation report, they complete their PAYG income tax withholding variation forms. In early June each year, they repeat the process for the next tax year. Philip says this is a key part of managing their cash flow. “It’s crazy to wait until the end of the financial year. We couldn’t imagine doing it without it.”
They know how much they would be paying in tax if they did not have properties and they look at the tax they are paying after the forms have been processed, then work out how much extra cash they are receiving from their pay. They have the difference transferred into their investment account the day after payday. This account receives all rent money and they use it to pay the interest for the loans. They try to spread out their repayments across the month. To make sure they have enough money available in case a property needs repairs or becomes vacant, they also keep up extra repayments on their home loan. They ring their agents immediately they see any delay in rent payments into their account. They also check their accounts daily now that they have four properties.
However, Philip says, “Since we started building our portfolio, I haven’t worried one bit. I’m vigilant but I don’t worry. I know others do but I can see that things are only getting better as time passes. You have to look at what you own. Ange is more inclined to worry, so I don’t tell her some things and she’s happy with that.”
The Kerrs advise to start investing as soon as possible. If you are young, make good use of time. If you are older, there is still time to improve your financial position so get going. Make sure you have an excellent accountant who knows property and charges reasonable fees.
Philip also advises that any tax concession you get should be put back into the investment and keep a $5,000–7000 buffer in an offset account for each loan.
As Christians the Kerrs have always been part of a church community and feel that by building wealth they will be able to continue to support the work from within the church or the general community as they feel led. They feel extremely privileged to have had this opportunity to learn about being wise with the resources they have.
The Kerrs attend Custodian seminars and are always looking for people who are interested in investing among the people they meet. They not only look for positive people they can learn from but also for positive people who want to learn how to invest – and do it right. To that end, the Kerrs have introduced several people to Custodian.
The Kerrs didn’t expect to be able to achieve so much to secure their financial future so late in their working lives but as Ange says, “John Fitzgerald says to surround yourself with people who are going to encourage you and inspire you. He always has something new to say and challenges you to stretch yourself further.” Philip and Ange enjoy contributing to the community. Philip teaches beginning weaving skills and Ange plans to volunteer in the community once she retires.
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*extract from Custodian Millionaire Case Studies magazine printed in 2012.