Empower Wealth Review: A Year of Property Investment in Review

This article is one of a series of articles outlining my experiences as a client, and an Empower Wealth review.

I have a simple financial plan, that has developed slowly over the past four years.  As a high-income earner with a stay at home spouse, the plan is to purchase a property in each of our names, then pivot to aggressively investing in index funds and superannuation. Then, five years before an earlyish retirement (maybe), we enter the debt pay off stage.

My priorities are investing for the future, building inter-generational wealth whilst maximizing our quality of life.  Most important is time and holidays spent with our young kids.

Read about my approach to whether to invest in Property vs Share and whether I regretted purchasing an investment property after six months.

Despite the serious pain caused the thought of a $15.000 Empower Wealth buyers agent fee, I decided to suck it up and pay (here’s why).  So in the end, we were assisted by professionals at Empower Wealth, a buyers agency in Melbourne.

This review is long overdue, I apologize to those that have been requesting it!  My one year review is actually 15 months, but we’ve just got the all important valuation.

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Empower Wealth Review

Read about why I decided to pay for professional advice for property investment.  I was thoroughly impressed with the service provided by Empower Wealth.  They were patient, helpful, and well organized.  Our buyers’ agent found a property that provoked a bidding war between tenants, the winner of which moved in the day after settlement.  They have proactively checked in since purchase to make sure it’s going OK, and to review interest rates.

Our Experience as Landlords

We have now been landlords for around 15 months.  Our first tenants were wonderful, taking great care of our house and always paying the rent on time.  There have been a few repairs required, most right at the start of tenancy when things got noticed.  Since then, we replaced a toilet and a stove top.

Our property managers liaise with the tenants and generally send an email, allowing me to approve a repair quote electronically.  This suits me, as at work I often don’t answer my phone, and so this system minimizes hassle.

Our tenants gave their notice in August as their new home build was complete.  The cost of re-advertising was a bit pricey at $770.  It pays to look after and keep your tenants!  The property was quickly re-leased and our new tenants moved in days after the previous ones moved out.

I was unable to attend the exit inspection due to COVID-19, but the landlord sent detailed photos through, with no issues to report.

Owning a Rental Property through COVID

The property’s stove top broke in the middle of COVID, causing a bit of a saga.  Then, our property manager couldn’t source a replacement.  With COVID-19, suppliers are struggling to restock.  So sorting this did involve the property manager calling me a couple of times to update and check the plan with me.  They worked out a solution and offered a rent reduction to our patient tenants (with our consent), for being stuck eating salad for a couple of weeks.

The rent arrives in our bank each fortnight, and bills go straight to the property manager to be paid and charged to our account.  It is great to have less life administration to deal with, with all the financial records organised by the property managers, ready for tax time.

Many landlords and tenants have been experiencing financial stress during COVID, but we were lucky.  But luckily, our tenants had very secure employment, as do I, so there were no issues.

I did worry about finding a replacement tenant, but was quickly reassured by the property manager “We will have no issues renting, it’s a great property”.  That was a relief with so much negativity around renting and property in the media.

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Cash-Flow Management

This property was chosen for it’s capital growth potential, and is negatively geared for the foreseeable future.

Here is a summary of the costs vs rent for the tax year 2019-2020.

Income26,384
Expenses

–          Interest on property loan

–          Council Rates

–          Water

–          Repairs & Maintenance

–          Quantity surveyor Report

–          Insurance

–          Cleaning

–          Property agent fees

–          Depreciation

20,900

1,451

1,206

3,549

495

1,562

716

2,928

28,22

Net Rent-9,245
Tax Refunded from PAYG employment4,160
Out of pocket costs-5,085

We have a loan to value ratio of > 80% and with this, couldn’t get an interest only loan.

Principal payments are another $12,100 for the year.  This is reducing our mortgage debt on the investment loan, but isn’t the most efficient use of savings.

I would rather use this to invest in index funds, or even pay our non-deductible home mortgage down.  We will try and get this converted to an interest only loan this year.

Valuation of Investment

After labour lost the election in 2019, silly old me thought that was the end of the drama.

Then came COVID, dire media predictions of the Australian property market collapsing, and now a recession.

The stock market collapsed 30%, and has recovered back to all time highs.

A large reason for me wanting to own rental property was to have income unrelated to the stock market.

After watching the events of 2008-2009, I thought it would be a great idea to diversify into a less volatile asset.  I don’t mind the volatility while I’m working and investing, but after retirement that sounds stressful!

With record low interest rates and a bidding war leading to higher than expected rent, we’ve saved money faster than expected.

I did plenty of extra shifts shortly after buying to ensure we had a plentiful emergency fund.  Then I’ve been asked to cover more shifts due to staff taking more sick leave at work (COVID Precautions).

As long as our home and 1st investment property have held their value overall, we are ready financially to buy our 2nd investment property.

I contacted Empower Wealth, who have been thrown into chaos with the rest of Melbourne, and are working from home.  After an initial chat with our mortgage broker, we have ordered valuations of the two homes.

The valuation is finally in.  Our home valuation has dropped 0.88% over 18 months.  I would say we are in a regional town vulnerable to the negative effects of COVID, so am actually relieved the drop isn’t far worse.

Our investment property has increased 7.3% in 15 months.  This is again better than I had expected, given the situation, and provides unexpected equity to use for our next purchase

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Empower Wealth Review: Thoughts 1 Year after Investing

Our first investment property has largely been looked after by the rental managers.

There has been more work involved than buy index funds, with several emails and four phone calls through the year.

This seems like a small effort for the added benefit (keeping in mind added risk) of leverage and diversification.

CostsGains calculated for 12 months
Buying costs-36,000
Buyer’s agent fee-14000
Net Out of pocket costs of holding property for tax year 2019-2020 after rental income and tax deduction-5,085
Capital gain34,400
TOTAL-50,08534,400

So the capital gain for the first year did not quite paid for all the buying and holding costs. But it’s getting close, especially if you consider paying a buyer’s agent saved me an equivalent amount off the purchase price.  Of course, the first year’s capital gain is pretty meaningless in the grand scheme of the investment.  We need strong and consistent capital growth over the long term, only time will tell.

Empower Wealth Review: The Next Property Purchase

I have spoken to colleagues who used Empower Wealth to choose their property.  Despite being very happy with the advice and service provided, decided they could go it alone the second time and regretted it.

For those of us not in the property industry, it’s important to recognise our knowledge and experience gaps.  Buying property often goes horribly wrong, due to a lack of research, absence of legal governance over “property advisors” and an overconfidence amongst investors.

A property investment is a huge purchase, using borrowed money that has to be paid back, regardless of investment performance.  It is critical that an appropriate property is selected.  Now, having seen the value provided by Empower Wealth, we wouldn’t try and purchase another investment without carefully chosen professional help.

Unfortunately for me, I have no financial incentive to recommend Empowered wealth 🙂 If you want to check out Empower Wealth, their website is here.

Conclusions

I am so pleased we finally took the plunge to be property investors and that we found Empower Wealth to guide us.  We feel optimistic about the future performance of our investment.  I think we have been lucky through COVID-19, and despite the gloom and doom in the media, our valuations are up, allowing us to start the process of purchasing again.  Wish us luck!

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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