Building Wealth Through Investment Property
The Jan Somers Story
One of the more remarkable aspects of Jan Somers’ story is how quickly it all happened… how a hard-working Brisbane housewife became wealthy by investing in residential property. As Jan puts it: “Once the penny dropped, it all happened very quickly, like a plant growing and blossoming.”
The lifestyle and the rewards are all very different from the kind of future Jan envisaged when she and her husband were first married twenty-five years ago.
“Both of us came from poor backgrounds,” she said. “We grew up in a period when you learned that you needed to get a good education, get a good job, and then stick at it for the rest of your life, and that’s how we started out in life – very firmly entrenched in academia.”
Jan achieved a science degree and became a high school teacher. Her husband Ian began a career in the computer industry, and in 1972 they did what all newlyweds did at the time – they bought a house.
“There was no thought at the time of any form of investment. You bought a house to live in, and because we couldn’t afford to buy in the main area of Brisbane’s Redcliffe peninsula where I’d grown up, we bought a 7 square high set chamfer with a fibro roof in an outlying suburb – in those days, Kippa Ring had nothing, no facilities whatsoever.”
“But like so many couples of the time, we bought there because that was where we could afford to buy. It was a dreadful house, but we bought it, and then, also following the teaching of the time, we set about paying for it as quickly as possible.”
At that stage, Jan says, she knew nothing about investment in any form. “But I did know how to save, and so every bit of spare money went to pay off the mortgage.”
Meantime, Ian’s computer career meant a move to Sydney. “We didn’t know what to do with our Brisbane house, so we kept it,” Jan said. “And because we thought we couldn’t afford to buy in Sydney where the prices were so much higher, we rented a house there.”
Ian’s career brought them back to Brisbane, so they bought a second house, again for somewhere to live, this time on the southside in another developing suburb, Capalaba.
“In the first six years of our marriage, we shifted between Brisbane and Sydney. On our second trip back to Brisbane, we bought a third house in Redcliffe, and then we were back to Sydney again.”
The Sydney market still seemed far too expensive for them to buy into although, as Jan remembers, she was given some inkling that this was not the case.
“I was talking to a real estate agent about whether we should rent or buy, and explained that we had the three properties in Brisbane that we wanted to hang onto. He said to me: ‘Lady, with what you’ve got in Brisbane, you could afford four houses in Sydney.’ I didn’t take a great deal of notice of what he said. After all, they don’t teach you anything about negative gearing when you do a science degree. But we were the academics with our great wealth of knowledge so we figured he was just a fast-talking salesman.” Jan reflects ruefully: “That’s the trouble with so many academics. You tend to suffer from tunnel vision.”
Another trip back to Brisbane meant another house, this time in the bayside suburb of Cleveland where the Somers family still live.
“It was then we decided to have a family and Ian decided that, since I had the time on my hands, I could look after our tax. It was when I started learning about this hitherto unfamiliar subject that I began to realise that the salesman in Sydney had been right.”
“At that stage, in 1982, we had acquired four houses. We’d purchased them on short term principal plus interest loans, 10 to 15 years, and we’d always paid a very high deposit. We’d paid off the Kippa Ring house, and the Capalaba and Redcliffe houses were almost paid off.”
“Now I realised how the equity in those properties could be used to buy more investment houses, and that, along the way, we could enjoy some really significant taxation advantages. I used the equity together with the income of one person. Because of Ian’s career we’d never been a two income family. I’d tended to rely on a bit of supply teaching here or a casual job somewhere else.”
“Once I started I just kept on buying, working on the buy and keep principle, not looking for the quick money but relying on the fact that, in the long term, real estate is the most solid investment you can get.” In five years, Jan had accumulated a property portfolio worth millions of dollars.
“When I look back, I realise I should have borrowed more than I did,” she said. “But then, compared to what everyone else was doing, I was being really adventurous. What happened was that we took advantage of opportunities. As it was, it became a tremendous learning experience.” In 1987, Jan discovered that their investments had created a situation where money was no longer an issue. The serious side – building a portfolio for the sake of investment – was over.
Buying properties had now become more of a hobby. “That was when I decided I needed more mental stimulation so I decided to go back teaching,” Jan remembers. “I lasted three months. It was then I decided to put all this new found information down on paper.”
So began a new career which started with: Jan Somers, theorist – Ian Somers, typist. I stood over his shoulder and dictated my A to Z of investing. It was just half a dozen pages which I gave to people who wanted it.” “It was only after we found that as fast as we made copies they went that we realised just how much demand there was for the material.”
It was from those small beginnings that Jan’s two bestselling books, Building Wealth though Investment Property and Building Wealth in Changing Times were written.
“Writing that first book involved a lot of research. Up until then I had been investing successfully without knowing why it worked, what it was that drove this principle, how it differed from shares, and why it will continue to work.”
“As I continued the research all the academic training came back. Up until then it hadn’t been at all useful. It was no help in acquiring property and in negotiating finance; if anything it was a hindrance. But eventually it, and my teaching skills, were finally being put to good use.”
The second book came through criticism in the financial press that the principles Jan had been expounding would no longer work in a time of low inflation.
“I felt I needed to write that book to keep faith with those who believed in me,” she said.
INVESTING IN TODAY’S ECONOMY
Many property investors – and, unfortunately, many financial journalists – operate under the mistaken impression that lower inflation automatically lowers the attractiveness of property investing.
In such times newspapers across Australia frequently run headlines such as ‘lower inflation takes the shine off residential property’ and ‘Negative gearing is dead.’
Their ‘logic’ appears to be based on the following assumptions:
= High capital growth
= Good times for property investment;
= Low capital growth
= Bad times for property investment.
Supposedly informed financial commentators tell their readers and listeners that leveraged property investment strategies are now ‘outdated’ and they should look for alternatives to property. Carrying their ‘logic’ over to negative gearing, the arguments are:
High interest rates
= High tax deductions
= High tax www.propertyinvestorplanning.com.au
= Negative gearing is worthwhile;
Low interest rates
= Low tax deductions
= Low tax www.propertyinvestorplanning.com.au
= Negative gearing is dead.
Some people listen to them, taking their chances with a volatile sharemarket or leaving their funds in low-yielding monetary instruments. Others, however, continue with their original investment strategy, buying carefully selected properties to hold for the long term. They realise that property prices are cyclical and, in the long term, will provide them with a steadily increasing asset base that will eventually provide for a financially independent and enjoyable retirement.
They’re not trying to ‘buy and sell’ for a quick profit and are therefore little affected by regular short and medium-term cycles of high and low inflation.
They also realise that real returns – the returns after inflation – may be even greater in periods of low inflation. For these reasons Jan has continued to buy property throughout the 90’s and is still adding to her portfolio in 1998.
“I just bundle the three kids into the car and off I go. They used to groan ‘Not another house, Mum!’ when, every couple of months, I’d buy something new. The principle never varied. It was always residential property, and it was always ‘buy and keep.’ Today, buying houses is somewhere between a career and a hobby. I do it because I love it.”
How many houses are in the current portfolio?
“Quite a few,” Jan admits. “I couldn’t put a figure on it, and if I could, I wouldn’t!”
As the book sales soared, so did Jan’s reputation. She appeared extensively on television and radio programmes and invitations to speak at seminars flowed in from all over the country. And she’s still buying houses. “I suppose you could say I’m now moulding the portfolio,” she says. Are there any differences in the properties she buys today, compared to what she was looking at fifteen years ago? What’s the key to ‘buying right’ in 1998? “The eighties were the era of the low-set brick home, very basic, with 3 or 4 bedrooms. That was what I bought – basic residential property, be it houses, townhouses or units.”
“I always tell people that if you judge an investment property on a scale of 0 to 10, you should be looking for a 3 to a 5. These were probably all closer to 3. But they were, and still are, good earners. These are the standby properties that you can rely on.”
“My advice to people planning to buy property now is basically the same as it was a decade ago… look for well-located property near the median price for the area. Buy to hold… don’t try to sell for a quick profit.”
“Today, I tend to use more intuitive judgement. I’m prepared to pay a bit more with houses that are a bit more speculative. I still borrow as much as I can and I look at every property as a long term venture.”
“While I’ll buy off the plan, I would never buy off the plan and sell for a quick gain. I still look at every investment from a long term perspective and ask myself: What will this place be doing in ten year’s time? But today I’m prepared to stretch the parameters. On that scale of 0 to 10, I’m probably going for the 6’s now.”
Jan believes that much of the success in property investing comes down to psychology and this is the reason why not everyone can get out and do it. “It’s not a lack of money or ambition. Most people can manage there. It’s the doubts – the inability to put the little problems associated with property into perspective and see the big picture – that stops many people.” Looking back over the 25 years, Jan admits it’s been a remarkable story… but her success is the proof behind the theory.